Around six million homes were sold in 2021. If you’re ready to enter the housing market this year, it can be an overwhelming process, especially if you have poor credit. You might think it’s impossible to qualify for a loan. 

Buying a house with a low credit score has its challenges but it’s not impossible. You might encounter better loan terms with a high credit score but you’re not exempt from making a purchase if you don’t have a super high score. 

This guide will discuss how to buy a house with bad credit. We’ll also discuss how to understand your credit score and ways to quickly increase it. 

What Is Considered a Bad Score?

Unbeknownst to many people but many mortgage lenders don’t have a minimum credit score requirement to qualify for a loan. However, a conventional mortgage lender can set their own credit score requirements. Government-backed home loans do have credit score requirements that are much lower than a traditional loan. 

Just because your credit score is below a mortgage lender’s recommended amount doesn’t mean you can’t qualify for a loan. It typically means you’ll be offered an interest rate that’s higher. 

Some of the credit score requirements for different types of loans include:

  • Conventional Loan: 620 or higher
  • VA Loan Requirements: 580 or higher 
  • FHA Loan Requirements: 580 or higher 
  • USDA Loan Requirements: 620-640 or higher 

How to Understand Your Credit Score

You can see what your credit score is by viewing your credit report. You can access your credit report from the three credit reporting agencies for free. 

The credit reporting agencies are:

  • Equifax®
  • TransUnion®
  • Experian™

If you’re looking to purchase a home, you should stay on top of your score. Check it for errors to ensure it’s giving you an accurate score. Once you determine what your score is, you can look at what your options for a home loan would be. 

The credit reporting agencies gather information from banks, lenders, and other types of companies and compile it to formulate what your credit score is. Most lenders look at your FICO® Score. 

The below factors are taken into account during the calculation of your credit score:

  • How your credit is used
  • If you make on-time payments
  • How long your credit history is
  • The different types of credit you have
  • Your credit accounts 

Once you’ve figured out what your credit score is, it’s time to figure out what range it falls in. 


Poor credit is any score lower than 640. Mortgage lenders consider a poor credit score to be high risk. While you might not qualify for a conventional home loan, you could get a loan backed by the government. 


A credit score of 640 to 600 falls in the fair range. You might have a stronger payment history or less debt than those with poor credit. 

You could qualify for a conventional mortgage with a score in this range. However, you’ll need to be strong in other areas to compensate for it. 


Those in the “good” range will have a score between 700 and 749. You’ll have an easier time qualifying for a mortgage with a good credit score. You’ll also qualify for a lower interest rate. 


Any credit score above 750 falls in the excellent range. Having an excellent credit score shows you know how to manage your debt and make on-time payments. Combining an excellent score with a steady source of income, you can qualify for loans from various lenders. 

How to Buy a House With Bad Credit

Everyone’s credit score is different and based on a variety of factors. Lenders will evaluate your individual situation when determining if you qualify for a loan. 

They’ll look at items, such as:

  • Your down payment amount
  • Your income
  • How much debt do you have
  • If you have any debt in collections

When you have bad credit, having a bigger down payment works in your favor. That’s because, with a low credit score, you might qualify for a low amount. If you have a large down payment to cover the difference, you can afford a more expensive house. 

Additionally, the lender you go with will play a factor as well. That’s because each lender has its own set of requirements. Be prepared to pay a higher monthly payment with a bad credit score because you’ll get a loan with higher interest rates. 

What Loan Options Are Available?

We talked a bit about the credit score requirements for each type of loan. Let’s dive a little deeper into each one. 

Conventional Loan

While there isn’t a minimum requirement for a down payment, credit score, or income with a conventional loan, lenders typically prefer your score to be above 620. There are exceptions to this, however. If your income is higher or you have a down payment larger than 20% it’s easier to qualify with a low credit score. 

VA Loans

Individuals who are currently serving in the military or are veterans can qualify for a VA loan. The Department of Veterans Affairs back all VA loans and you can qualify with $0 down. Some VA loan lenders might have you pay a “funding fee.”

FHA Loans

For first-time homebuyers, an FHA loan is a great option they have lower requirements. This loan is also backed by the Federal Housing Administration. The minimum credit score you need is 500. 

USDA Loans

The US Department of Agriculture backs USDA loans. You can purchase a home in a rural area with no money down. In addition to a minimum credit score of 640, there are other specific income requirements. 

There are also other agencies that can help you buy a home at a low cost if you’re ready and willing to do some renovations. Companies like URB Chicago have homes for sale at a low price that you can easily qualify for. 

Buy Your Dream Home Even With a Bad Credit Score

It’s not impossible to buy a house with bad credit. Knowing what your credit score is and looking for ways to improve it is all part of the buying process. Don’t let a low credit score discourage you from pursuing the home of your dreams. 

For more articles on the home buying process, check out our blog. 

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