How to Qualify for a Mortgage With Bad Credit

August 27, 2025·By Tucker Allen

What "bad credit" means in mortgage terms

For mortgage purposes, credit scores generally bucket like this:

740+ — Best pricing on every program.
680–739 — Good. Most programs available, slightly higher rates.
620–679 — Borderline. Conventional starts here; pricing isn't great.
580–619 — Sub-prime conventional territory; FHA still works.
500–579 — Limited options; FHA with 10% down or specialty non-QM.
Below 500 — Most lenders won't fund.

If you're in the 500–620 range, you have options. Below 500, focus on credit repair before applying.

Programs that work for sub-620 credit

FHA loans

The most common path. FHA accepts 580+ scores with 3.5% down, and 500–579 with 10% down. The trade-off is mortgage insurance for the life of the loan, which can usually be removed later by refinancing into conventional.

VA loans

If you're a veteran, active service member, or eligible surviving spouse — VA has no formal credit minimum. Most lenders set their own at 580–620, but some specialize in lower-credit VA borrowers. $0 down and no PMI ever.

USDA loans

Most lenders require 640+ for USDA, but some go down to 600 with manual underwriting. Property must be in an eligible area and household income must fit limits.

Manual underwriting

Standard mortgage approvals are largely automated. When automated underwriting denies a borderline file, manual underwriting lets a human underwriter weigh "compensating factors" — strong reserves, low DTI, big down payment, stable employment — to approve. Available on FHA and VA mostly.

Non-QM and portfolio lenders

Specialty lenders that don't sell loans to Fannie/Freddie can flex more. Bank statement loans, asset-depletion loans, and some scratch-and-dent programs accept lower credit. Higher rates and larger down payments are typical.

How to compensate for low credit

Lenders look at the full picture. Stronger numbers in other categories can offset a weaker credit score.

Larger down payment

The more equity you put down, the less risk the lender takes on. 10–20% down often opens doors that 3.5% won't.

Lower DTI

Pay off small debts to free up DTI. Each $100/month of monthly debt eliminated equals about $14,000 of borrowing power at typical ratios.

More cash reserves

Three to six months of mortgage payments in liquid savings reassures underwriters that you can survive a hiccup.

Stable employmentTwo+ years at the same job (or in the same field) is a strong compensating factor. Frequent job changes work against you.

Co-borrower or cosigner

A spouse, parent, or family member with stronger credit can be added to the application. See our cosigning article for the trade-offs.

Quick credit-repair moves

Pay down credit card balances

Utilization (balance/limit) is a major score driver. Getting individual cards under 30% utilization, then under 10%, often bumps a score 20–40 points within 30–45 days.

Don't close old cards

Closing reduces total available credit (hurting utilization) and shortens average account age. Keep them open with zero balance.

Dispute errors

Pull your credit reports at AnnualCreditReport.com (free). Anything you don't recognize can be disputed. Disputes resolve in 30 days.

Pay off recent collections

Some collection agencies will mark accounts as "paid in full" or even delete after payment. Negotiate before paying.

Become an authorized user

If a family member with good credit will add you to a card with long history and low utilization, the card's history can boost your score.

What NOT to do

Don't open new credit before applying. Each inquiry shaves a few points and adds debt.
Don't dispute legitimate items. Disputes "flag" the file and underwriting can pause until resolved.
Don't pay off and then close cards. Hurts utilization. Pay off, leave open.
Don't fall for credit-repair scams. Anyone promising to remove accurate negative items for a fee is selling you something illegal or impossible.