What to Do If Your Credit Score Is Too Low For a Mortgage

Even if your credit score is dismal, you still have options for buying a home.

Mortgage Loan
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By Abby Hayes

If you're preparing to buy a home, you probably know that your credit score is important. Maybe you've already been turned down for a mortgage because of a low credit score. Or maybe you've recently pulled your credit report, only to realize that your credit is worse than you expected.

Don't give up on buying a home yet! There are plenty of places to turn if your credit is too low to get a conventional mortgage. But first, you should figure out what lenders expect of your credit score, since you might be surprised to find that you can indeed buy a home with your current credit score.

What do conventional lenders expect?

Lending requirements vary from one lender to the next, but they've generally become more strict since the subprime mortgage lending crisis in 2008. As a rule of thumb, though, you'll need a FICO score of about 650 to get a conventional mortgage –- and that's on the low end.

Remember, the lower your credit score, the higher your mortgage's interest rate is likely to be. This can have a dramatic effect on how much you pay for your home over time. So if you're sitting on the mid-to-low end of the credit spectrum, you may want to look into some of these options, even if you qualify for a conventional mortgage.

Put More Money Down

Mortgage lenders look at a host of factors when deciding whether or not to lend you money. One of those factors is your credit score. But another factor is your down payment.

With some lenders, you may be able to offset a weak credit score with a higher down payment. With a bigger down payment, you'll have more equity in your home, which means the lender takes less of a risk when lending to you.

If you've got a substantial amount of money in savings, but still have a fairly low credit score, consider applying for a mortgage with a smaller bank or credit union.
Often, these smaller entities operate under more flexible lending guidelines, so you can talk to a loan officer about your situation and maybe get a favorable result.

Research Non-Conventional Loans

Another option if you have a low credit score (and especially if you combine a low credit score and a small down payment) is to look into non-conventional loans. Non-conventional or non-conforming loans, such as the Federal Housing Administration loan, Veterans Affairs loan and U.S. Department of Agriculture loan, often have less stringent lending requirements.

For instance, you may be able to get a FHA loan with a credit score of just 580, as long as you can put 3.5 percent down. With a higher down payment of 10 percent, you may be able to get an FHA loan with even lower credit.

One other option is to talk with banks in your area about specialized lending programs. Some banks offer programs for lower-income, lower-credit homebuyers, which could lift credit restrictions enough for you to qualify.

Work With a Homeownership Counselor

There are some local and national nonprofits that offer homeownership counseling such as HomeFree-USA and HOPE NOW.

Nonprofits like these offer counseling to future homebuyers who need help raising their credit scores or navigating the homebuying process. It may take some time, but with the help of a credit and housing counselor, you can learn which steps to take to raise your credit score and apply for a home loan.

Get Your Credit Score Up

You could also simply take the time to bootstrap yourself into a better credit score. Raising your score isn't complicated, but it does take time, discipline and hard work. These steps can help get your credit score up so that you can qualify for a mortgage:
  1. Correct any errors on your report, especially late payments or collections accounts that aren't recorded properly.
  2. Make all your payments on time. Late payments are the No. 1 way to ding your credit score.
  3. Pay down revolving debt like credit cards. A high debt-to-credit ratio is another surefire way to lower your score.
  4. Wait it out. As long as you're paying down debt and making payments on time, your credit score will eventually rise on its own.
Even if you decide to apply for a non-conventional loan or put more money down on your home, these are good credit health habits to start for a lifetime.

Abby Hayes is a freelance blogger and journalist who writes for personal finance blog The Dough Roller and contributes to Dough Roller's weekly newsletter.

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I writing to you for my son and his wife who are deaf and have never bought a house. They live on fixed income of ssi and ssdi, together is 1476. month. They dont have much of a credit score or report. A house they are interested in is at 2003 morgan rd, Bremen Ga 30110 , the have been quoted 2 different prices 17. 0000 and 25,000. Could you help them with a morgage and what will the need to finance this house. Names are wesley thomas smith and christy m smith,
Thank you so much, Janie Smith

December 31 2014 at 9:45 AM Report abuse rate up rate down Reply

FHA - VA Approved with Credit Scores as low as 580.
• Direct Endorser of FHA and VA loans:
FHA Loan: 3.5% down payment, plus 580 or greater credit score VA Loan : 0% down payment, plus 580 or greater credit score.
• FHA Loan: 580-619 credit requires a debt to income ratio of 43% or less to avoid automatic downgrade to manual underwrite, 620+ FICO up to 55% DTI with an Automated Approval.
• VA Loan: 100% financing up to a 46% DTI on a manual underwrite. [If compensating factors needed, see list below].
• 3 Open Trade Lines with 12+ months recent activity & positive payment history.
• Alternative trade lines accepted: utilities, car/renter's insurance, cable, phone, etc….
• Loan Processing and Underwriting all under one roof.
• 15- 21 day Turn times from Contract date to Fund Date.
• Same Day Credit Analysis and Conditional Loan Approvals—7 days a week.

Compensating Factors [When Necessary on a Manual Underwrite].
One or more of the following:
• 1-3 months of reserves (PITI).
• Job stability (2+ Years with Current Employer).
• A potential of a substantial increase in earnings due to job training or education.
• Current rent is comparable to or more than proposed mortgage payment (Minimal payment shock).

Chris Mallon
Loan Officer
1300 West Walnut Hill Lane, Suite 257 Irving TX 75038.
Irving Office Direct: 214-281-8623 Cell: 817-874-0465 Fax: 888-377-8031.
Email: chris.mallon@nlc-loans.com.
Company NMLS # 32416-Branch NMLS #1219148.

October 21 2014 at 5:11 PM Report abuse rate up rate down Reply


January 10 2014 at 10:36 AM Report abuse rate up rate down Reply

I see a lot of comments on here like "pay your bills on time" from the folks that are doing well with todays conditions. Kinda hard for some to pay on time when they are making poverty wages as prices for everything they need for their familys continue to rise daily and have been doing so for years. With huge out of pocket medical cost, increased energy cost and STAGNANT WAGES the last 20 years, it's easy to get a un-paid medical bill on your credit report listed for 7 YEARS. Some folks just don't have a CLUE and live in their on little world. OPEN YOUR EYES.

November 04 2013 at 7:49 AM Report abuse +1 rate up rate down Reply

if your score is too low-try paying your bills on time..its fools like you who put this country on the rails for the past 7 years when you were all given a chance and most all of you blew it bigtime !! stay in your parents basement until you can learn to pay your bills ON TIME !!

November 03 2013 at 7:21 PM Report abuse +2 rate up rate down Reply

I would say that a good way to improve your credit score is to pay ALL of you bills on time and cut up your credit cards. Bad credit scores get that way for a reason.

November 03 2013 at 6:44 PM Report abuse +1 rate up rate down Reply

you forget to mention that if you have a foreclosure on your record.. regardless of your credit score you can't get a loan for at least 3 years… no bank will touch it.. my score is still 730 +/- and i can't get a loan with 50% down unless i want to go outside the banking industry. the rates are stupid at like 8 to 10%…. no thanks…

November 03 2013 at 3:04 PM Report abuse rate up rate down Reply

Pay your bills on time. Not paying your bills will bite you in the rear. Pay cash. Can't afford it? Then don't buy it. No brainer stuff.

November 03 2013 at 11:33 AM Report abuse rate up rate down Reply

Yea, don't buy a house. That's what got us in to this mess !

November 03 2013 at 7:17 AM Report abuse +2 rate up rate down Reply

If one could \"put more money down\" then they would have had FAR lower credit issues to begin with !

November 02 2013 at 8:18 PM Report abuse +2 rate up rate down Reply