Can You Buy a House with Bad Credit in 2026? 5 Real Options That Work
Credit score below 620? Bankruptcy or foreclosure in your past? Don't give up on homeownership. You CAN buy a house with bad credit - you just need to know which programs accept low scores and how to maximize your approval odds.
⚡ 5 Ways to Buy with Bad Credit
1. FHA Loan (500-579 Score)
10% down, government-backed
2. FHA Loan (580+ Score)
3.5% down, easiest option
3. Subprime Lenders
500-579 score, higher rates
4. Manual Underwriting
No score, verify payment history
5. Co-Signer/Co-Borrower
Use their good credit
🎯 Get Pre-Approved with Bad Credit
See if you qualify for FHA or other bad credit programs. Lenders specialize in low credit scores:
What Is Considered "Bad Credit"?
Bad credit typically means a FICO score below 620. Here's how credit scores are classified:
| Credit Score Range | Rating | Mortgage Options |
|---|---|---|
| 300-499 | Very Poor | Very limited (subprime only) |
| 500-579 | Poor | FHA (10% down), subprime lenders |
| 580-619 | Fair | FHA (3.5% down), VA (if veteran) |
| 620-679 | Fair/Good | Conventional (higher rates) |
| 680-739 | Good | All loan types, good rates |
| 740+ | Excellent | Best rates available |
⚠️ THE REALITY:
Bad credit (below 620) means: Higher interest rates (7-9% vs 6-6.5%), Larger down payment (10% vs 3.5%), Higher PMI costs, Fewer lender options, Stricter approval requirements. But it's NOT impossible - you just need the right strategy.
Option #1: FHA Loans (500-580+ Score)
FHA loans are the #1 option for bad credit buyers. They're government-backed, so lenders take less risk and accept lower scores.
FHA Credit Score Requirements
✅ 580+ Score (Best Option)
- • Down payment: 3.5% minimum
- • Rate: 7-7.5% (bad credit)
- • DTI: Up to 50%
- • PMI: 0.55-0.85% annual
- • Loan limits: $524,225-$1,249,125
Example: $400K home = $14K down payment
⚠️ 500-579 Score (Harder)
- • Down payment: 10% minimum
- • Rate: 7.5-8.5%
- • DTI: Up to 43%
- • PMI: 0.55-0.85% annual
- • Few lenders: Harder to find
Example: $400K home = $40K down payment
Real Example: FHA with 580 Score
Buyer Profile:
- Credit score: 580
- Income: $60,000/year
- Debts: $400/month (car, student loans)
- Savings: $20,000
FHA Loan Approval:
- Home price: $350,000
- Down payment: $12,250 (3.5%)
- Loan amount: $337,750
- Rate: 7.25%
- Monthly P&I: $2,303
- PMI: $245/month
- Total payment: $3,048/month (with taxes/insurance)
- DTI: 43% (approved!)
Result: Approved for $350K home with 580 score and 3.5% down
📐 FHA PROS & CONS:
✅ Pros: Low credit OK (580), low down payment (3.5%), high DTI allowed (50%), collections under $2K OK
❌ Cons: PMI for life (unless 10%+ down), upfront PMI fee (1.75%), loan limits, property must meet FHA standards
🎯 Check If You Qualify for FHA
See if you qualify for FHA with your credit score. Get pre-approved in 3 minutes:
Get Pre-Approved (FHA Bad Credit)Option #2: VA Loans (580-620 Score, Veterans Only)
If you're a veteran, active military, or surviving spouse, VA loans are incredible for bad credit. No down payment required and no PMI.
VA Loan Bad Credit Requirements
- Credit score: 580-620 minimum (lender dependent)
- Down payment: 0% (no down payment required!)
- PMI: None (huge savings)
- Funding fee: 2.15-3.3% (can roll into loan)
- DTI: Up to 50-55%
- Rate: 6.5-7.5% (better than FHA with bad credit)
✅ VA ADVANTAGE:
No PMI saves $200-300/month compared to FHA. On $400K loan, that's $72K-108K over 30 years. Even with bad credit, VA is better deal than FHA if you qualify.
Option #3: Subprime Lenders (500-579 Score)
Subprime lenders specialize in bad credit mortgages. They charge higher rates but will approve scores as low as 500.
What to Expect from Subprime Lenders
| Credit Score | Interest Rate | Down Payment | Requirements |
|---|---|---|---|
| 500-549 | 9-12% | 20-25% | Very limited options, high costs |
| 550-579 | 8-10% | 15-20% | More options, still expensive |
| 580-619 | 7-8.5% | 10-15% | FHA usually better option |
⚠️ SUBPRIME WARNING:
Subprime lenders charge 8-12% rates (vs 6.5-7.5% FHA). On $400K loan, that's $400-800/month more = $144K-288K over 30 years. Only use subprime if FHA denies you. Better strategy: Improve credit for 6-12 months, then apply for FHA.
Option #4: Manual Underwriting (No Credit Score)
If you have no credit score or very limited credit history, manual underwriting verifies your payment history without a score.
Manual Underwriting Requirements
- 12 months rent payments (on time, verified by landlord)
- 12 months utility bills (electric, water, gas - all on time)
- Employment history (2+ years same employer or field)
- Bank statements (3-6 months, showing reserves)
- No collections or judgments (clean public records)
- DTI below 43% (stricter than automated underwriting)
📐 WHO QUALIFIES:
Manual underwriting works for: Recent immigrants (no US credit), Young buyers (thin credit file), Cash-only users (no credit cards), People rebuilding after bankruptcy. FHA and VA allow manual underwriting. Conventional is rare.
Option #5: Co-Signer or Co-Borrower
Adding a co-signer (parent, spouse, partner) with good credit can help you qualify despite bad credit.
Co-Signer vs Co-Borrower
Co-Signer
- • Guarantees loan (backup payer)
- • NOT on title (doesn't own home)
- • Their credit helps you qualify
- • Rare for mortgages (more common for cars)
Co-Borrower
- • Equally responsible for loan
- • ON title (co-owns home)
- • Their income + credit used
- • Common for mortgages
Example: Co-Borrower Approval
- You: 580 credit score, $50K income
- Parent: 740 credit score, $80K income
- Combined: $130K income, use parent's 740 score
Result:
- Qualify for conventional loan (620+ score)
- Get 6.5% rate (vs 7.5% with your score alone)
- Save $200/month = $72,000 over 30 years
- Parent co-owns home (on title)
⚠️ CO-BORROWER RISKS:
Co-borrower is equally responsible. If you miss payments, their credit suffers. If you default, they must pay or lose home. Only ask someone you trust completely. Consider legal agreement on ownership/payments.
How Much Does Bad Credit Cost You?
Let's see the real cost of bad credit over 30 years:
| Credit Score | Rate | Monthly ($400K) | Total Interest | Extra Cost |
|---|---|---|---|---|
| 760+ (Excellent) | 6.25% | $2,462 | $486,320 | Baseline |
| 620 (Bad Credit) | 7.5% | $2,797 | $606,860 | +$120,540 |
| 580 (Poor Credit) | 8.0% | $2,935 | $656,600 | +$170,280 |
| 550 (Very Poor) | 9.0% | $3,218 | $758,480 | +$272,160 |
💰 THE BRUTAL TRUTH:
550 credit score vs 760 score = $272,160 extra cost over 30 years. That's $756/month more. This is why improving credit before buying is SO important. Even 6-12 months of credit repair can save you $100K-200K.
Should You Fix Credit First or Buy Now?
This is the million-dollar question. Here's how to decide:
Buy Now If:
- Rent is expensive (mortgage payment similar to rent)
- Home prices rising fast (waiting = higher prices)
- You have 580+ score (FHA 3.5% down available)
- You can refinance later (improve credit, refi in 2-3 years)
- You're a veteran (VA loan with 0% down)
Wait & Fix Credit If:
- Score below 580 (need 10% down FHA or subprime)
- Can improve 50+ points in 6 months (pay down cards, dispute errors)
- Rent is cheap (gives time to save + improve credit)
- Recent bankruptcy/foreclosure (wait for seasoning period)
- High DTI (need to pay down debts first)
📐 THE MATH:
Improving credit from 580 to 680 (6-12 months) saves $200-300/month = $72K-108K over 30 years. If home prices rise 5% during that time ($20K on $400K home), you still save $52K-88K net. Usually worth waiting IF you can improve significantly.
🎯 Ready to Buy with Bad Credit?
Get pre-approved and see what programs you qualify for. Lenders specialize in bad credit mortgages:
Frequently Asked Questions
Can I buy a house with a 500 credit score?
Yes, but it's very difficult. FHA allows 500 score with 10% down ($40K on $400K home). However, few lenders accept 500-579 scores. Subprime lenders will, but charge 9-12% rates. Better strategy: Improve credit to 580+ for FHA 3.5% down option.
How fast can I improve my credit score?
30-180 days depending on issues. Fast fixes (30-60 days): Pay down credit cards below 30% utilization (+30-50 points), Become authorized user (+20-40 points), Dispute errors (+10-50 points). Slower fixes (6-12 months): Pay all bills on time (+20-30 points), Pay off collections (+10-30 points). Total potential: +70-170 points in 6-12 months.
What if I have recent late payments?
Depends on how recent and how many. 1-2 late payments over 12 months: Usually OK for FHA. 3+ late payments: Harder approval, may need explanation letter. Late payments in last 6 months: Very difficult, wait 6-12 months. 30-day late = -50-100 points, 60-day late = -100-150 points.
Can I refinance later to get a better rate?
Yes! This is a common strategy. Buy now with bad credit (7-8% rate), improve credit for 2-3 years (pay on time, pay down debts), refinance to lower rate (6-6.5%). Savings: $200-300/month. Caveat: Must have 20%+ equity to remove PMI, and rates must be 0.75%+ lower to justify refinance costs.
Do all lenders accept bad credit?
No, you need to find specialized lenders. Big banks (Chase, Wells Fargo, BofA): Rarely accept below 620. Credit unions: Sometimes accept 580-620 for members. FHA-approved lenders: Accept 580+ (some accept 500-579). Subprime lenders: Accept 500-579 (higher rates). Always shop 3-5 lenders to compare.
Meet Michael
Reverse Mortgage & Senior Specialist
Michael Thompson is a leading expert in reverse mortgages and senior financing solutions with 15 years of specialized experience. As a certified HECM specialist, he has helped thousands of seniors access their home equity for retirement planning. His compassionate approach and deep knowledge of FHA reverse mortgage guidelines make him a trusted advisor for families navigating senior housing and financial planning decisions.
EXPERTISE:
KEY ACHIEVEMENT:
Helped 3,000+ seniors access $500M+ in home equity