Apply and get approved for a mortgage, even with bad credit

If you have a bad credit score, a good mortgage may still be available.

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A bankruptcy you filed a few years ago, medical bills you couldn’t afford or even just a handful of late student loan payments can come back to haunt you when it’s time to buy a new house. While bad credit makes applying for a mortgage a little trickier, it doesn’t have to make it impossible.

What is the minimum credit score that I need to get a home loan?

When getting a mortgage, your credit score is an essential part of the decision-making process for lenders, if not the most important. Typically, credit scores range from 300 to 850, and lenders look for scores of 700 or above. You can find lenders that provide mortgages to borrowers with scores below 700, but your rate and terms won’t be favorable.

The type of mortgage you’re applying for will also affect the minimum credit score requirements. For instance, if you’re applying for an FHA loan, you’ll need a score of at least 500 to be eligible. And to qualify for the lower 3.5% down payment, you’ll need a score of at least 580.

Understand how you ended up with bad credit

There are a number of factors that can lead to strikes on your credit history. You may find your credit history damaged if you:

  • Have unpaid bills. This is one of the leading causes of bad credit scores. Make sure you keep your payments up to date and on time.
  • Have been late on payments. Late payments will also affect your credit history but they will not have as much of an effect as unpaid bills.
  • Have been declined for a loan. If you have recently been declined for a mortgage or other major loan, this will be recorded on your credit file. Many lenders will see this as a sign of impaired credit.
  • Have applied for credit too often. It is a general rule of thumb that you should only apply for any new line of credit once every six months. Any more than this could raise a red flag to lenders.
  • Have been declared bankrupt. If you have been declared bankrupt, it will stay on your credit rating for seven years.


Which credit score is usually used by lenders?

You might be surprised to learn that you have multiple credit scores. The one used by the overwhelming majority of lenders is your FICO score. A FICO score is determined by many factors, including payment history, amount owed, length of credit history, credit mix and new credit.

9 tips to apply for a home loan with bad credit and get approved

When applying for a home loan with bad credit, there are a number of things borrowers can do to help their chances:

1. Get a copy of your credit file.

Before you even apply for a mortgage, you’ll want to ensure that you’re familiar with your credit history. All of your prospective mortgage lenders will have a close look at your history before granting you a home loan, so you want to be able to discuss any negative marks on your credit file with confidence. You can get one free copy of your credit file each year. This will help keep you aware of any negative listings you might be able to fight against using a credit repair service.

2. Take steps to settle any outstanding debts.

New lenders will want to know what you’ve done to address your past credit mishaps, so ensure that any defaults are paid and you do the right thing by your previous creditors.

3. See if a credit repair service can help you.

Some bad credit listings, if placed on your file without proper adherence to the relevant laws, can be removed from your file. A credit repair specialist can help you in this regard. Removing negative listings from your credit file can help you apply for a regular home loan, avoiding the higher fees and interest rates of a bad credit home loan.

4. Apply for a loan with a specialist lender who looks beyond the numbers.

Certain lenders specialize in bad-credit home mortgages. These lenders take into account that bad credit can result out of a lifestyle change, such as divorce or illness, and will take into account your income and other factors. You might be able to get a mortgage even if you’ve filed for bankruptcy or have other strikes on your credit file.

5. Don’t apply for too many loans in one space of time.

Your credit file includes all previous inquiries for credit, which includes past loan applications. Be careful who you apply for a mortgage with if you already have bad credit. Too many inquiries in the same space of time can present another red flag to prospective lenders, as it could indicate money management problems.

6. Tell your lender about your bad credit listings honestly.

As with every lender, a non-conforming lender will look at all the red flags in your credit history. However, they will also ask for an explanation regarding each entry, and you will have to be thorough in the details you provide. If you try to hide something, you won’t improve your credit rating. You will simply make the lender more suspicious. This may lead to your application being declined on the grounds that you were not being transparent enough or fully honest about your circumstances. It is possible to get a home loan with bad credit but you will have to be open and transparent with your lender.

7. Save up a bigger down payment.

If you’re able to save up a larger down payment, you’ll look less risky to potential lenders. A larger down payment might convince a lender to work with you even if you have bad credit.

8. Avoid applying with a spouse who has bad credit if you can.

If your partner is the one with bad credit, sometimes you can avoid rejection and the higher interest rates of a bad credit loan by applying as a single applicant. This will obviously reduce your borrowing power, so consider this before applying this tip.

9. Eliminate your other debts to make your file look better.

When your lender looks at your application, they’ll take into account all of your current credit accounts, including credit cards and personal loans. If you can pay these off and close them before applying it’ll be one less factor that will work against you when your lender decides whether to approve or reject you. This is because your lender will look at your total capacity to pay off a loan, and if you have a number of credit cards even if they’re not currently being used or maxed out your lender could see this as a red flag.

Bad credit case studies

Martha's Post-Divorce Triumph


Martha was married to her husband Travis for 30 years.

Unfortunately, they separated and later divorced over the course of two years. During these two years, the stress of the divorce coupled with the loss of a second income when Travis moved out meant that Martha fell behind on a number of credit card payments and bills.

After the divorce and the sale of the family home, Martha wanted to purchase a small apartment for her to live in and be near her children and grandchildren.

Having a senior role at her job meant that her income was high making her a model applicant but her credit file showed a very different story.

Martha got a copy of her credit file, and using a credit repair service was able to remove one of the four listings from it.

She then approached a specialist lender who could see that apart from the three listings on her credit file during her divorce period, the rest of her file was spotless.

Three weeks later Martha had preapproval for a loan and was able to purchase the apartment she wanted.

Peter and Mary

Couple with bad credit Peter and Mary had been paying their home off for the past 20 years. Unfortunately, Peter fell ill and had to take four months off work. For the first two months they were able to cover their mortgage payments on time using Mary’s salary and their savings.

It was after those two months that the couple started to struggle. Bills were piling up and while they were able to keep up with their mortgage payments, several other bills were sent to a collection agency.

Realizing they needed to figure something out quickly, Peter and Mary talked with a lender and were able to refinance their home. The lender was willing to overlook the recent strikes on their credit scores because of Peter’s illness, and they were able to borrow against the equity in their home so that they could pay their bills on time until Peter was able to go back to work.


If you’re having trouble getting a mortgage because of bad credit, you do have options. Consider these:

  • Personal loan. If the cost of the home is cheap enough, you might be able to secure a personal loan.
  • Borrow from family. If you’re fortunate enough, you might be able to borrow money from a family member with better rates than a bank might provide.
  • Improve your credit. Taking out a loan with poor a rate and terms isn’t always advisable. Take the time to improve your credit score and purchase a home in the future.
  • Larger down payment. The larger your down payment, the better your chances of getting a mortgage.
  • Cosigner. If you have someone with good credit who is willing to cosign on your mortgage, you might qualify.

How to improve your credit score

If you’ve explored all of your options and still can’t get a mortgage, there are steps you can take to improve your credit. Here are the top three ways to improve your credit:

  1. Check your report for any mistakes or errors.
  2. Pay off debt so that your utilization rate is below 30%.
  3. Make payments on time always.

Bottom line

Buying a new home is stressful, and trying to get a mortgage when you have bad credit can make it even more so. However, a bad credit score doesn’t have to be the end of your new-home dreams. If you spend a couple of months working on improving your credit and find a lender who is willing to listen to your side of the story, it’s still possible to find a mortgage that works for you.

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Images: Shutterstock

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