Home Loans for Bad Credit – 2021 Mortgage Lenders & Programs
If you have bad credit, you may still have options to get a mortgage. This includes both FHA loans, and what are known as “non-prime loans”. Many people that non-prime loans are the same as the “subprime mortgages” of the past, but non-prime loans are different. You can learn more about non-prime loans below.
In order to determine what options may be best for you it will largely depend on your FICO score (credit score) and other aspects of your credit report. It is helpful to know what your credit score is before applying for a mortgage. This way you will know what lenders are most suitable for your credit profile.
Federal law mandates that every American is entitled to one free credit report from each bureau once a year. You can pull your credit for free through Annual Credit Report.
If you already know what your credit score is, you may consider viewing a short list of the best lenders for your credit rating: 500-579 credit score lenders, 580 credit score lenders, and 620 credit score lenders.
Keep in mind that it is not merely your credit score that mortgage lenders look at. They will also look at the overall details of your credit report, such as any potential derogatory marks, the total amount of debt you have, and your current trade-lines (trade-lines are open credit accounts, such as an auto loan or credit card). They will also look at the payment history of such accounts, but some late payments will not necessarily cause your loan application to be rejected.
If you have a low credit score due to a recent major credit event such as a bankruptcy, foreclosure, or short sale, you will need a lender that does not have a mandatory waiting period that you must wait out before you are eligible to get a mortgage. We work with many non-prime lenders that allow you to get a mortgage even just 1 day after such events (some of these lenders are featured below on this page under the section titled “non-prime loans for bad credit”).
For people with more general credit issues that have resulted in a low FICO credit score (bad credit is usually considered anything below a 620 credit score), FHA loans are a good option. Some FHA lenders will approve a borrower with credit scores all the way down to 500!
Being that the FHA is the most common mortgage loan used by people with bad credit, we feature information on FHA loans first on this page. However, there are many unique non-prime mortgage programs that are good options for people with bad credit. We encourage you to compare all of your potential loan options in order to find the best mortgage. If you would like some assistance, we can help match you with a bad credit mortgage lender.
FHA Home Loans for Bad Credit
To qualify for a FHA loan, you must meet the following requirements. Many FHA lenders have their own guidelines, but the standard FHA qualifications are listed below:
- 2 years employment, including your last 2 tax returns.
- Credit score varies by lender, but most will want at least a 580. If your credit score is below a 580, that does not necessarily disqualify you. As stated above, some FHA mortgage lenders allow credit scores as low as 500. Chances are that you will need a larger down payment than the standard 3.5% that is required of FHA loans. If your credit score is between 500-579, you may be able to get a FHA loan, but be prepared to need to put at least 10% down.
- 3 trade-lines (either credit cards, auto loans, or other credit reported trade-lines)
- No bankruptcy, foreclosure, or short sale in the last 2 years There is an exception to this rule, which in certain cases which are known as “extenuating circumstances” only 1 year must pass . What qualifies for this exception is a job loss, medical issues, or other circumstances out of your control.
If you would like to find the best FHA lender for your specific situation, we can help you get a free FHA mortgage quote. You may also see if you qualify for other types of home loans at the same time.
Best FHA Lenders for Bad Credit
Below are some of the top FHA lenders that help borrowers with bad credit (credit scores as low as 500).
4.) Guaranteed Rate
5.) U.S. Bank
Non-Prime Loans for Bad Credit
In addition to FHA loans, there are also many non-prime mortgage lenders that offer mortgage programs to borrowers with bad credit. This includes a variety of loan products that allow borrowers to have credit scores as low as 500. If your credit falls below a 580, you may qualify for a loan with the following lenders. These lenders all allow you to be only 1 day out of a major credit event, such as a bankruptcy, foreclosure, or short sale.
2.) ACC Mortgage
3.) Greenbox Loans
4.) A & D Mortgage
There are several other non-prime mortgage lenders that offer financing for borrowers with bad credit. You can view a list of the top 10 non-prime lenders, or if you would like some assistance, we can help match you with a mortgage lender.
Bad Credit Mortgage Refinance
If you have bad credit and need to refinance your mortgage, you may be able to do so. While a lot of refinance programs require at least fair or good credit, there are some options available for homeowners with bad credit.
Non-Prime Refinance – Borrowers who have bad credit, and that are unable to qualify for a conventional or FHA loan, may be able to qualify for a non-prime refinance loan. This includes the possibility to refinance with a credit score as low as 500. Non-prime refinance loans are available for both rate and term refinances, as well as cash out refinancing.
FHA Streamline Refinance – For homeowners that currently have a FHA loan, you may be able to refinance your mortgage without any credit check! Also, this program does not require a new appraisal, or any income documentation to be submitted! The FHA streamline refinance is exclusively for homeowners who already have an FHA loan.
FHA Cash Out Refinance – If you would like to cash out refinance, and are not able to qualify for a conventional cash out refinance loan, the FHA cash out refinance may be a good option for you. Unlike the FHA streamline refinance, this program is also available to borrowers that do not currently have an FHA loan. The FHA cash out refinance allows a homeowner to cash out up to an 80% LTV (this was previously 85%, but as of September 1st, 2019 it was reduced to 80%). In order to be eligible for the FHA cash out program, a borrower must have a credit score of 580 or higher (however, some FHA lenders may impose higher minimum credit score requirements).
Frequently Asked Questions
Is down payment assistance available to people with bad credit?
Most down payment assistance programs have a minimum credit score requirement (which often starts at 600 or higher). There are thousands of these programs available around the country, and the type of assistance, amount of assistance provided, and requirement vary greatly. If you would like to learn more about down payment assistance, we can connect you with a mortgage lender that can answer your questions, and help you see what programs you may be eligible for.
Can I get a jumbo loan with bad credit?
Most jumbo lenders only offer jumbo loans to borrowers with good or excellent credit. However, there are some non-prime jumbo lenders that will work with borrowers with credit scores as low as 600. You can learn more about jumbo loans, and view some non-prime jumbo lenders on this page.
Can I get a USDA loan with bad credit?
The minimum credit score requirement for USDA loans is now a 640 (for an automated approval). Fortunately, you can still get approved for a USDA loan with a credit score as low as 620, but it will require a manual approval by an underwriter. Would you like to learn more about the requirements to get a USDA loan?
Can a first time home buyer with bad credit get a mortgage?
Yes, you can have bad credit and get a mortgage as a first time home buyer. While FHA loans are not exclusively for first time buyers, they are generally considered a first time home buyer loan. We are unaware of any non-prime lenders who exclude first time home buyers from their programs.
Will having a joint applicant / co-borrower help me get a better mortgage?
Having a joint applicant that has good credit, and meets other requirements, could certainly help improve your chances of getting a home loan. It may also help you get approved for a better interest rate.
How can I improve my credit score?
Some common and effective ways of improving credit is to pay down debt (it is ideal to be below 30% on credit cards). If you lack much credit depth, you may want to look at opening some new trade-lines (it is ideal to have at least 3 trade-lines in good standing). Avoid taking on any credit that you can not comfortably afford to pay. Also, keep in mind that some lenders may want to see credit accounts seasoned for a year or more to show the payment history, and they also don’t want to see you take on too much new debt at once. With any credit account, be sure to make all payments before the due date. Having a good payment history, and also not having any maxed out credit cards is a good way to start improving your credit.
What is the lowest down payment?
If your credit score is above a 580, you may qualify for a FHA loan with only a 3.5% down payment. If your credit score is between 500-579, you may qualify for a FHA loan with a 10% down payment. Most non-prime loans require at least a 10% down payment (and some may even want 20% or more). If you have strong compensating factors, this may help you qualify for a lower down payment.
What is the highest loan amount that I can borrow?
The maximum loan amount you will be able to borrow will depend on many factors. If you want an FHA loan, it will depend on the FHA loan limits for your county. Your income will also play a very large part in the maximum amount you can borrow. FHA loans have a maximum DTI ratio (debt-to-income ratio) of 43%. Most non-prime loans have a max DTI ratio of 50%. Therefore, if you have a high income, you should be able to afford a higher payment, allowing you to buy a more expensive home. If your income is low, you will be limited in how much you can borrow. The interest rate you are offered will also influence how high of a loan amount you can borrow, since it is your monthly mortgage payment that is factored into the DTI ratio (along with any other monthly payments you have on credit reported debts. The ratio is total monthly debt payments compared to total bring home income).