Key Takeaways
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FHA, VA, and USDA loans provide options for buyers with low credit scores, often requiring little or no down payment.
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A higher credit score can lead to better rates, so improving credit before applying can save money.
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Lenders have different requirements, so shopping around or using a broker increases approval chances.
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Paying bills on time, reducing debt, and checking credit reports can help improve a low credit score.
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A low credit score can make securing a mortgage more difficult, but it does not mean homeownership is out of reach. Many loan programs cater to buyers with lower scores, offering flexible qualification requirements. By understanding available mortgage options and taking steps to improve credit, buyers can increase their chances of approval.
What Is Considered a Low Credit Score?
Lenders evaluate credit scores to assess risk and determine loan eligibility. According to FICO®, credit scores fall into the following categories:
| Credit Score Range | Category |
| 670+ | Good |
| 580-669 | Fair (Subprime) |
| Below 579 | Poor |
Most conventional lenders require a minimum score of 620, but government-backed loans provide more flexible options for those with lower scores.
Best Mortgage Options for Buyers with Low Credit Scores
Certain loan programs offer more lenient requirements, making homeownership possible for buyers with less-than-perfect credit.
FHA Loans
Backed by the Federal Housing Administration (FHA), these loans are one of the most accessible options for buyers with low credit scores. Most lenders approve borrowers with scores as low as 580 with a 3.5% down payment. Some accept scores as low as 500, though they typically require 10% down.
| Pros | Cons |
| Lower credit score requirements | Requires mortgage insurance (MIP) |
| Low down payment options | Property must be a primary residence |
| Competitive interest rates | x |
VA Loans
Available to veterans, active-duty service members, and surviving spouses, VA loans provide a no-down-payment option with competitive interest rates. The Department of Veterans Affairs (VA) does not set a minimum credit score, but most lenders require 580-620.
| Pros | Cons |
| No down payment required | Only available to eligible veterans or military personnel |
| No private mortgage insurance (PMI) | Home must meet VA appraisal standards |
| Competitive interest rates | x |
USDA Loans
Designed for homes in eligible rural and suburban areas, USDA loans offer zero-down-payment financing. Most lenders require a 640 credit score, but some accept lower scores with additional documentation.
| Pros | Cons |
| No down payment required | Restricted to rural and suburban areas |
| Low mortgage insurance costs | Income limits apply |
| Competitive interest rates | x |
Conventional Loans
Conventional loans generally require a 620 score, but borrowers with lower scores may still qualify with a larger down payment or a co-borrower with strong credit.
| Pros | Cons |
| No upfront mortgage insurance with 20% down | Higher credit score requirements |
| More property type flexibility | Stricter debt-to-income (DTI) ratio guidelines |
How to Improve a Credit Score Before Applying for a Mortgage
If a buyer’s score is too low for their preferred loan program, they can take steps to improve it before applying.
1. Check and Dispute Errors on Reports
Buyers should request free reports from Experian, Equifax, and TransUnion to identify potential errors. Disputing incorrect negative marks can lead to a higher credit score.
2. Pay Down Outstanding Debt
Credit utilization—how much of the available credit a borrower is using—makes up 30% of a FICO® score. Keeping card balances below 30% of the account limit improves the utilization ratio, making applicants more attractive to lenders.
3. Avoid Opening New Credit Accounts
Each new application results in a hard inquiry, which can temporarily lower a score. Buyers should avoid opening new lines of credit for at least 6-12 months before applying for a mortgage.
4. Make On-Time Payments
Payment history is the largest factor in a credit score, accounting for 35%. Even one late payment can significantly impact a borrower’s credit. Setting up automatic payments ensures bills are paid on time.
5. Consider a Co-Signer
A co-signer with a strong score can improve approval chances. However, co-signers share full responsibility for the loan and must be willing to take on the financial risk if the primary borrower defaults.
Finding the Right Lender for Low Credit Buyers
Not all lenders have the same requirements. Some specialize in helping borrowers with lower scores find flexible mortgage options. When searching for a lender, buyers should:
- At Loan Pronto, we specialize in helping buyers with low credit find the best path to mortgage approval.
- Ask about manual underwriting, which considers factors beyond credit scores
- Work with a mortgage broker for access to various loan programs
Get Pre-Approved Today!
A low credit score does not have to prevent homeownership. By exploring FHA, VA, USDA, and conventional loan options, improving credit, and choosing the right lender, buyers with lower scores can still achieve their goal of owning a home.
FAQs: Getting a Mortgage with a Low Credit Score
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