Home Loans for Bad Credit


Securing home loans for bad credit or poor credit history is not as difficult as it may sound. However, having a solid line of credit is one of the characteristics that lenders look for when determining eligibility, so you will need to research to find the right loan for your situation.

A home mortgage for low credit scores is a relatively new idea created by banks and other financial institutions. There are several programs designed to assist homebuyers in securing the funds for purchasing a home. Some, like FHA loans, are offered through the U.S. government. Others are provided through third parties and private lenders.

Having bad credit does not necessarily prevent you from getting approved for a home loan. However, these loans may come with stricter regulations and higher interest rates. Learn more about buying a home with bad credit below.


How Credit Affects Mortgage Rates

There are several home mortgage financing options for borrowers with poor credit. However, individuals with bad credit face a more difficult time securing funds than borrowers with good credit. Lenders want to be sure that a borrower has the means to repay the total amount. 

In general, getting a mortgage for poor credit means a higher interest rate. An interest rate is a percentage that a borrower must pay to the lender in exchange for the lender providing the funds. Since most Americans cannot pay the total cost of a home upfront, lenders provide money in exchange for a monthly fee. 

A credit score summarizes the borrower’s payment history in one number. The number is assigned based on several factors, including on-time payments, open loans and any debts or defaults the borrower may have. When a borrower makes consistent late payments or has a high amount of debt, his or her credit score will be lower.

Lenders can double or even triple the interest rate for borrowers with low credit scores This means the borrower ends up paying more for the money he or she borrows.

FHA Loans

FHA loans are mortgages secured by the federal government. The Federal Housing Authority or FHA oversees this program meant to help low-credit borrowers purchase a home. 

These home loans for bad credit have a few eligibility requirements, such as:
  • Minimum credit score 
  • Down payments
For some borrowers who struggle to come up with a down payment, there are down payment assistance programs. These programs work in conjunction with home loans to provide immediate funds without a hefty down payment.

Getting a mortgage with poor credit generally requires a certain percentage of a down payment. However, some loans, like the USDA home loan, are available with zero money down. Offered through the United States Department of Agriculture, USDA loans allow borrowers to skip out on the down payment altogether in exchange for purchasing a house in a “rural” area.

Other down payment assistance programs may be offered by individual states, although eligibility requirements and conditions will vary. It is important to understand the options in your state before applying for any of these programs.

Home mortgage financing options for veterans and active-duty military members are some of the best in terms of down payment assistance. Home loans from the Veterans Administration (VA) require zero down payment. To qualify, borrowers must meet certain service-related criteria. 

How to Improve Your Credit

If finding home loans for bad credit is too much for you, why not try to improve your credit before looking for financing options? Financial lenders are much more willing to approve borrowers with solid lines of credit, especially those who have worked to increase their scores.

The best way to improve one’s credit score is to make continuous on-time payments. To help you remember due dates, set monthly payment reminders on your phone or write them on a calendar. 

Other ways to improve your credit include:
  • Lowering the total amount of debt.
  • Keeping low balances on credit cards.
  • Not closing out unused cards.
  • Opening new accounts only as needed.