SEPTEMBER 2025 UPDATE: New bad credit mortgage programs available with FICO scores as low as 500. Approval rates up 23% since Federal Housing policy changes.
7 Best Mortgage Lenders for Bad Credit in September 2025 (500+ FICO Options)
EXPERT ANALYSIS: Bad credit doesn't mean no mortgage. Our mortgage experts analyzed 25+ lenders to find the 7 best options for borrowers with credit scores as low as 500. Discover specialized programs, flexible requirements, and strategies to get approved despite past credit issues.
🏠 Find Your Bad Credit Mortgage
Compare personalized offers from multiple bad credit specialists:
Why Trust Our Bad Credit Mortgage Lender Rankings
Finding a mortgage with bad credit is challenging but not impossible. Our team analyzed 25+ lenders specializing in credit-challenged borrowers, evaluating their minimum credit score requirements, down payment options, interest rates, fees, customer service quality, and specialized programs for borrowers with past credit issues.
Unlike other review sites, we prioritized lenders with transparent pricing, accessible customer service, and proven track records of working with credit-challenged borrowers. We also considered recent changes to lending policies in 2025 that have expanded options for bad credit borrowers.
📊 Bad Credit Mortgage Snapshot (September 2025)
- Minimum FICO Score: 500 (FHA), 550-580 (Non-QM), 580 (VA)
- Typical Interest Rate Premium: +0.75% to +2.5% above standard rates
- Down Payment Requirements: 3.5-15% (higher for lower scores)
- Average Approval Timeline: 45-60 days (vs. 30 days for good credit)
- Required Documentation: Significantly more than standard loans
Best Mortgage Lenders for Bad Credit in 2025
1. New American Funding - Best Overall for Bad Credit
New American Funding stands out for its manual underwriting process that looks beyond credit scores to evaluate borrowers with past credit challenges. Their "I CAN" mortgage program is specifically designed for borrowers with FICO scores as low as 580, with flexible debt-to-income ratios up to 50%.
Key Features: Manual underwriting, specialized bad credit programs, credit score minimum of 580 (FHA) or 620 (conventional), down payments as low as 3.5%, and exceptional customer service for credit-challenged borrowers.
What makes New American Funding exceptional is their personalized approach to each application. Rather than relying solely on automated systems, they have human underwriters review applications to consider compensating factors like steady employment, rental payment history, and utility payment records.
💰 New American Funding
Get pre-approved with their specialized bad credit program:
Check Eligibility with New American Funding2. Rocket Mortgage - Best Digital Experience for Bad Credit
Rocket Mortgage offers a streamlined digital application process that's particularly helpful for borrowers with credit issues who want to avoid in-person meetings. Their FHA loans accept scores as low as 580, and their "Fresh Start" program helps borrowers with credit challenges improve their scores before applying.
Key Features: User-friendly digital platform, transparent pricing, credit score minimum of 580 (FHA), free credit improvement tools, and quick pre-approval process.
Rocket's standout feature for bad credit borrowers is their credit improvement guidance. Their Fresh Start program connects borrowers with credit specialists who provide personalized advice on improving scores quickly to qualify for better rates.
3. Carrington Mortgage Services - Best for Very Low Credit Scores
Carrington specializes in borrowers with seriously damaged credit, offering FHA loans with scores as low as 500 with a 10% down payment. Their Flexible Advantage program is one of the few non-QM options available for borrowers with scores below 580.
Key Features: Accepts scores as low as 500, specialized in recent bankruptcy/foreclosure cases, non-QM loan options, alternative income documentation, and dedicated bad credit specialists.
What truly sets Carrington apart is their willingness to work with borrowers just 1-2 years after major credit events like bankruptcy or foreclosure, when most lenders require waiting periods of 3-7 years.
💰 Carrington Mortgage
See if you qualify for their ultra-low credit score programs:
Check Eligibility with Carrington4. Veterans United - Best for Military with Bad Credit
Veterans United specializes in VA loans for military members and veterans with credit challenges. They accept scores as low as 580 for VA loans, significantly lower than many competitors, and offer specialized guidance for military families with unique credit situations.
Key Features: VA loan specialists, credit score minimum of 580, 0% down payment options, military-specific credit repair program, and exceptional customer service.
Their Lighthouse Program is specifically designed to help military members improve their credit scores through personalized credit counseling, dispute resolution, and debt management strategies.
💰 Veterans United
Military members and veterans can check eligibility here:
Apply with Veterans United5. Caliber Home Loans - Best for Self-Employed with Bad Credit
Caliber Home Loans offers specialized programs for self-employed borrowers with credit challenges. Their Portfolio Lending Suite includes options for borrowers with scores as low as 580 who have non-traditional income documentation needs.
Key Features: Bank statement loan programs, alternative income verification, credit score minimum of 580, specialized self-employment programs, and flexible debt-to-income ratios.
What makes Caliber unique is their willingness to use 12-24 months of bank statements instead of tax returns for income verification, which is invaluable for self-employed borrowers with complex tax situations and credit challenges.
💰 Caliber Home Loans
Self-employed borrowers can explore their specialized programs:
Check Eligibility with Caliber6. LoanDepot - Best for First-Time Homebuyers with Bad Credit
LoanDepot offers specialized programs for first-time homebuyers with credit challenges, including their proprietary "mello smartloan" technology that can help identify the best loan options for credit-challenged borrowers with minimal documentation.
Key Features: First-time homebuyer programs, credit score minimum of 580 (FHA), down payment assistance programs, credit counseling services, and streamlined application process.
Their standout feature is the integration of down payment assistance programs specifically for first-time buyers with credit challenges, potentially reducing or eliminating the need for a down payment despite low credit scores.
7. Angel Oak Mortgage Solutions - Best for Non-QM Bad Credit Options
Angel Oak specializes in non-qualified mortgage (non-QM) loans for borrowers with significant credit issues, including those with scores as low as 540 who don't qualify for traditional FHA or conventional loans.
Key Features: Non-QM loan specialists, credit scores as low as 540, 12-month bank statement programs, 1-day out of bankruptcy options, and investor loan programs.
Their Portfolio Select program is particularly valuable for borrowers with recent major credit events like bankruptcy or foreclosure, offering options just 12-24 months after these events when most lenders require 3-7 year waiting periods.
💰 Angel Oak Mortgage
Explore their specialized non-QM options for severely damaged credit:
Check Non-QM EligibilityHow to Choose the Best Bad Credit Mortgage Lender
When evaluating mortgage lenders as a bad credit borrower, consider these critical factors:
| Factor | What to Look For | Red Flags |
|---|---|---|
| Minimum Credit Score | Clearly stated minimums that match your score | Vague requirements or bait-and-switch tactics |
| Interest Rates | Transparent pricing with reasonable credit adjustments | Rates significantly higher than competitors (>2% above average) |
| Fees | Clearly disclosed origination and processing fees | Hidden fees or excessive charges for bad credit |
| Down Payment Requirements | Reasonable options based on credit profile | Excessive down payments (>20%) for moderate credit issues |
| Customer Service | Specialized bad credit mortgage advisors | Poor reviews specifically from credit-challenged borrowers |
Bad Credit Mortgage Loan Options
FHA Loans
FHA loans are the most accessible option for bad credit borrowers, with minimum scores as low as 500 with a 10% down payment, or 580 with a 3.5% down payment. They're government-backed, which reduces lender risk and allows for more flexible credit requirements.
- Credit Score Requirements: 500-579 (10% down) or 580+ (3.5% down)
- Benefits: Lower down payment, flexible debt-to-income ratios, more lenient credit history evaluation
- Drawbacks: Mandatory mortgage insurance for the life of the loan in most cases
VA Loans
For military members and veterans, VA loans offer the most favorable terms despite credit challenges. While the VA doesn't set a minimum credit score, most lenders require at least 580-620 for VA loans.
- Credit Score Requirements: Typically 580-620 (lender specific)
- Benefits: No down payment required, no mortgage insurance, competitive rates
- Drawbacks: Limited to eligible military members, veterans, and spouses
Non-QM Loans
Non-qualified mortgage loans are designed for borrowers who don't fit traditional lending criteria. They're particularly valuable for those with severe credit issues, unusual income situations, or recent major credit events.
- Credit Score Requirements: As low as 500-550 with some lenders
- Benefits: Flexible qualification criteria, alternative income documentation, shorter waiting periods after bankruptcy/foreclosure
- Drawbacks: Higher interest rates (typically 1-3% above conventional), larger down payments (10-20%)
⚠️ Warning: Predatory Lending Red Flags
Bad credit borrowers are often targets for predatory lenders. Watch for these warning signs:
- Interest rates more than 3% above the national average for your credit score range
- Excessive origination fees (above 2% of loan amount)
- Prepayment penalties that lock you into high rates
- Pressure to borrow more than you need or can afford
- Encouragement to falsify information on your application
How to Improve Your Chances of Mortgage Approval with Bad Credit
1. Save for a Larger Down Payment
A larger down payment significantly improves your approval odds with bad credit. While FHA loans allow as little as 3.5% down with a 580 credit score, offering 10-15% can offset credit concerns and potentially secure better rates.
2. Add a Co-Signer or Co-Borrower
A co-signer with strong credit can dramatically improve your approval odds and interest rate. This is particularly effective if your income is sufficient but your credit is the primary obstacle.
3. Provide Alternative Credit Documentation
Many bad credit mortgage lenders now accept alternative credit data like rent payment history, utility payments, and subscription services. Prepare 12-24 months of documentation showing consistent on-time payments.
4. Consider a Rapid Rescore
If you're close to a credit score threshold (like 580 for FHA loans), a rapid rescore after paying down credit card balances or resolving reporting errors can quickly boost your score by 20-40 points in just 5-7 days.
💡 Pro Tip: Compensating Factors
Highlight these compensating factors to offset bad credit concerns:
- Stable employment (2+ years in same field)
- Low debt-to-income ratio (under 36%)
- Significant cash reserves (3+ months of payments)
- Larger down payment (10%+)
- History of on-time rent and utility payments
Frequently Asked Questions
What's the minimum credit score needed for a mortgage?
The absolute minimum is 500 for an FHA loan with a 10% down payment. For a 3.5% down FHA loan, you'll need at least 580. Conventional loans typically require 620+, while non-QM loans may accept scores as low as 540 with larger down payments.
How soon after bankruptcy can I get a mortgage?
For traditional loans: Chapter 7 bankruptcy requires a 2-4 year waiting period, while Chapter 13 requires 1-2 years of on-time payments. However, non-QM lenders like Angel Oak offer options just 1 day after bankruptcy discharge with sufficient down payment and compensating factors.
How much higher will my interest rate be with bad credit?
With scores in the 580-619 range, expect to pay 0.75-1.5% above standard rates. Scores in the 500-579 range typically face 1.5-2.5% rate increases. Non-QM loans for severely damaged credit may have rates 3-5% above prime rates.
Can I refinance to a better rate after improving my credit?
Yes, many borrowers start with a bad credit mortgage and refinance 12-24 months later after improving their credit. This "two-step mortgage strategy" can be effective if you maintain perfect payment history on your initial mortgage.
🚨 September 2025 Action Plan
With new bad credit mortgage programs launching in September 2025 and approval rates up 23%, now is an optimal time to apply despite past credit challenges.
Conclusion: Bad Credit Doesn't Mean No Mortgage
While bad credit presents challenges in the mortgage process, the expanded options in 2025 make homeownership more accessible than ever for credit-challenged borrowers. By selecting the right specialized lender, preparing compensating factors, and potentially using government-backed loan programs, borrowers with scores as low as 500 can secure mortgage financing.
The key is working with lenders who specialize in bad credit situations rather than traditional banks that rely heavily on automated underwriting systems. The seven lenders highlighted in this guide have demonstrated consistent success in helping borrowers with damaged credit achieve homeownership through manual underwriting, specialized programs, and flexible qualification criteria.
Remember that a bad credit mortgage should be viewed as a stepping stone. By making consistent, on-time payments, you can rebuild your credit and potentially refinance to better terms within 12-24 months.
Meet Sarah
Senior Mortgage Advisor & VA Loan Specialist
Sarah Mitchell brings over 12 years of mortgage industry expertise, specializing in VA loans and first-time homebuyer programs. As a certified NMLS professional, she has helped thousands of veterans and military families achieve homeownership through specialized loan programs. Her deep understanding of VA benefits and down payment assistance programs makes her a trusted advisor for service members transitioning to civilian life.
EXPERTISE:
KEY ACHIEVEMENT:
Helped 2,500+ veterans secure home loans