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Buying a Home with Bad Credit

Taking the major step in life that is buying a home can feel intimidating. Whether you’re a first-time homebuyer or you’ve done it before, there are dozens of questions to ask, details to consider, and forms to sign. One of those details, in particular, is extremely important: your credit score.

A poor credit score can definitely make getting a loan difficult, but it’s not impossible.

Can You Buy a Home with Bad Credit?


At least, that’s the short answer. Unfortunately, the full truth of the matter is a little more complicated than a simple “yes”.

First, let’s define what we mean when we say “bad credit”. According to FICO®, the private company in charge of issuing credit scores, anything below 670 is not good. Specifically, a score between 580 and 669 is “Fair”, and everything below 580 is “Poor”.

It may seem unfair, but even if your credit score is “Fair”, you’re in the Bad Credit category. But this doesn’t rule you out for buying a home! There are other elements to consider that can determine whether or not you’ll be able to buy a home.

Down Payment: How much money you have available for a down payment on a home has a significant impact on what kind of mortgage might be available to you.

Income and Debt: Obviously, how much money you make and how much money you owe factor into your credit score, but they are also standalone factors. If you or your partner recently landed a big raise, you should have more leverage to buy a home than you would otherwise.

Price of Home: It may seem like this goes without saying, but the price of the home you want to buy is an extremely important factor. If you’re unsure about what you can afford, you can always use a Home Affordability Calculator to determine a reasonable range.

Is This Your First Home?: First-time homebuyers in the United States have specific loan options available to them. If you’ve never bought a home before, you might be able to deal with a bad credit score more easily. We’ll talk more about that in the next section.

Home Loan Options for Bad Credit

Loans are what make it possible for the average person to buy a home, and loan options are limited by credit score. Here are a few loan types that may be available to you if you have a low credit score.

FHA Loans

The Federal Housing Administration (FHA) offers these loans to first-time home buyers. The required down payment for an FHA loan scales with your credit score:

  • 500-579: 10% down payment
  • 580+: 3.5% down payment

Conventional Loans

Conventional loans are the most common loan type in the housing market. Unlike the other loan types we discuss here, conventional loans are provided by private lenders. Generally speaking, you can get a conventional loan as long as your credit score is above 620, but other factors like down payment (see above) will come into play as well.

USDA Loans

This loan option is somewhat niche, but if you plan on buying a home in one of the qualifying rural areas, you may be eligible for a loan from the USDA. These loans require a credit score of at least 640 and $0 down payment.

VA Loans

Thanks to the U.S. Department of Veterans Affairs, VA loans are available to veterans of the United States military. If you qualify, you can get a home loan without a down payment! While there technically isn’t a credit score requirement for these loans, private lenders who make the loans may have a minimum you have to meet.

What to Do to Improve Credit Score When Buying a Home

Going in-depth on the myriad ways you can try to improve your credit score could take up a whole separate article! In fact, there are several great options right here on Activerain:

Some of the top tips we recommend to improve your credit score are:

  1. Increase the credit you have available to you: You can achieve this by paying down debts, requesting increases in your lines of credit, or adding new credit accounts.
  2. Pay Bills on Time: This tactic helps prove to credit companies that you’re a reliable borrower.
  3. Check Credit Reports for Errors: Credit reporting is not a flawless practice. Mistakes can happen! Looking at your credit report in detail and calling out errors when you find them can quickly improve your score if it was lower than it should’ve been.

Buying a Home is a Big Step

If you feel overwhelmed with the options, expectations, and convoluted processes involved in getting a loan with bad credit in order to buy a home, it’s ok to wait! Renting a home or apartment to save money and improve your credit score is a good intermediate step if you’re not quite ready to make such a big purchase. Even if you’re certain that you’ve found your “dream home”, who knows what other opportunities may come down the road?

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