Lenders will work with credit scores below 620, but you will pay more and face stricter terms
A low credit score does not lock you out of home loans. Federal Housing Administration (FHA) loans accept scores as low as 500, and some conventional lenders will consider borrowers at 620 or above. The trade-off is real: you will pay a higher interest rate, a larger down payment, and higher insurance costs than someone with stronger credit. The difference can amount to tens of thousands of dollars over the life of the loan.
Your actual options depend on three things: your credit score range, how much down payment you can make, and whether you have recent credit damage (like a foreclosure or bankruptcy). Different loan types have different rules about what they will accept and what they charge for it.
Key Takeaways
- FHA loans are the most accessible option for low credit scores, requiring as little as 3.5 percent down and accepting scores of 500 or higher, though 580 or above gets better terms.
- Conventional loans with low credit typically require 10 to 20 percent down and charge higher interest rates, but may have lower total costs if your score is above 660.
- Your debt-to-income ratio (the percentage of your monthly income that goes to debt payments) matters as much as your credit score; lenders use both to decide whether to lend.
- Recent negative events like foreclosure, bankruptcy, or late payments will require waiting periods that vary by loan type before you can borrow again.
- Working with a mortgage broker who specializes in low-credit borrowers can show you options from multiple lenders at once, rather than explore to each one separately.
FHA loans: the most common path for low credit scores
Federal Housing Administration loans are designed for borrowers who cannot meet conventional lending standards. The FHA does not lend the money itself; instead, it insures the loan so the lender takes less risk. This insurance is what allows lenders to accept lower credit scores and smaller down payments.
FHA loans accept credit scores of 500 or higher, though borrowers with scores between 500 and 579 will need to put down 10 percent. If your score is 580 or above, you can put down as little as 3.5 percent. You will also pay mortgage insurance premiums (MIP) — an upfront fee of 1.75 percent of the loan amount, plus an annual fee that runs 0.55 to 0.80 percent depending on your loan size and down payment. This insurance stays on the loan for the life of the loan if you put down less than 10 percent.
FHA loans have debt-to-income limits. Most lenders will not go above 43 percent, meaning your total monthly debt payments (including the new mortgage) cannot exceed 43 percent of your gross monthly income. Some lenders will stretch to 50 percent if your credit score is higher or your savings are substantial, but this is not standard.
Conventional loans: higher rates but potentially lower total cost
Conventional loans are not insured by a government agency. They are held by the lender or sold to investors like Fannie Mae or Freddie Mac. Conventional loans typically require credit scores of 620 or higher, though some lenders will go lower. The catch is that below 660, you will pay a noticeably higher interest rate — sometimes 1 to 2 percentage points more than someone with excellent credit.
Down payment requirements for low-credit conventional borrowers usually start at 10 to 15 percent. You will also pay private mortgage insurance (PMI) if you put down less than 20 percent. PMI costs 0.5 to 1.5 percent of the loan amount per year, depending on your credit score and down payment size. Unlike FHA mortgage insurance, PMI can be removed once you build equity or your credit improves.
Conventional loans have the same debt-to-income limits as FHA (typically 43 percent), though some lenders will stretch further for borrowers with compensating factors like substantial savings or a co-signer with strong credit.
Waiting periods after foreclosure, bankruptcy, or late payments
Recent credit damage creates mandatory waiting periods before you can borrow again. These are set by the loan type, not by individual lenders, so shopping around will not shorten them.
After a foreclosure, FHA requires a three-year waiting period before you can borrow again. Conventional loans require seven years. If you can show that the foreclosure was caused by a one-time event (job loss, medical emergency, divorce) and that you have rebuilt credit since, some lenders will consider exceptions, but this is rare and requires documented proof.
Chapter 7 bankruptcy requires a two-year waiting period for FHA and four years for conventional loans. Chapter 13 bankruptcy (where you repay creditors through a court-approved plan) allows you to borrow while still in the plan, but you will need court permission and proof that you are current on all payments. The waiting period after discharge is one year for FHA and three years for conventional.
Late payments do not have a fixed waiting period, but lenders look at how recent they are and how many there were. A single 30-day late payment from two years ago will hurt less than multiple late payments from the past year. Lenders typically want to see 12 to 24 months of on-time payments before they will consider you for a mortgage.
How to strengthen your process without waiting
If your credit score is low but you have not had a recent major event like foreclosure or bankruptcy, there are steps you can take now to improve your chances and lower your costs.
Reduce your debt-to-income ratio by paying down existing debts before you explore. Even paying off a car loan or credit card can lower your monthly obligations enough to move you from a 50 percent ratio to a 43 percent ratio, which opens up more lenders. Do not close the accounts after paying them off — closing accounts can actually lower your credit score temporarily by reducing your available credit.
Save for a larger down payment. The difference between 3.5 percent down and 10 percent down on an FHA loan can save you thousands in mortgage insurance costs over time. If you can reach 10 percent, you move into a lower mortgage insurance bracket.
Add a co-signer with good credit. A spouse, parent, or other family member with a credit score above 700 can co-sign your loan, which allows the lender to consider their income and credit history alongside yours. The co-signer is legally responsible for the debt if you do not pay, so this is a serious commitment for them.
Get a written explanation of any recent late payments or collections. If you had a legitimate reason — a medical emergency, temporary job loss, identity theft — document it. Lenders call this a letter of explanation, and it does not erase the damage, but it can prevent a lender from outright rejecting you.
Comparing offers from multiple lenders
Interest rates and fees vary significantly between lenders, even for the same loan type and credit profile. A difference of 0.5 percent in interest rate costs you roughly $100 per month on a $200,000 loan, or $36,000 over 30 years.
You have the right to get quotes from multiple lenders without damaging your credit score, as long as you do it within 14 to 45 days (depending on the loan type). Each lender will pull your credit once, but the credit bureaus treat multiple inquiries from mortgage lenders within a short window as a single inquiry for scoring purposes.
When comparing offers, look at the annual percentage rate (APR), not just the interest rate. The APR includes the interest rate plus fees and insurance costs, so it gives you a more complete picture of what you will actually pay. Also ask each lender about their debt-to-income limits, whether they require compensating factors (like savings or a co-signer), and how long the rate quote is good for (usually 45 to 60 days).
A mortgage broker can show you options from multiple lenders at once, which saves time if you are comparing many offers. Brokers are paid by the lender, not by you, so there is no additional cost to use one. However, not all brokers specialize in low-credit borrowers, so ask specifically whether they work with FHA loans and scores below 620.
What happens after you are approved
Approval is not the same as final commitment. After you are approved, the lender will order an appraisal to confirm the home is worth what you are paying for it. If the appraisal comes in low, you will need to either renegotiate the price, increase your down payment, or walk away. Low-credit borrowers sometimes face stricter appraisal standards, so it is worth getting a pre-appraisal inspection to know what to expect.
The lender will also verify your employment and income one more time, usually within a few days of closing. If you change jobs, take time off, or have a significant change in income between approval and closing, tell your lender when ready. Some lenders will back out if your income situation changes materially.
You will also need to show proof of funds for your down payment and closing costs. If someone is gifting you money for the down payment, the lender will require a signed gift letter stating it is a gift, not a loan you have to repay. Some loan types have restrictions on how much of your down payment can be a gift.
Frequently Asked Questions
What credit score do I actually need to get a mortgage?
FHA loans accept scores of 500 or higher, though 580 or above gets better terms. Conventional loans typically require 620 or higher. Some lenders specialize in scores below 620 and will work with you at 580 to 619, but you will pay higher rates and need a larger down payment. Your actual options depend on the lender, not just your score.
Will my interest rate ever go down if my credit improves after I get the loan?
Not automatically. Your rate is locked in at closing. However, you can refinance your loan later if your credit score improves significantly (usually 620 or higher). Refinancing means taking out a new loan to pay off the old one, which comes with new closing costs, so you need to calculate whether the savings are worth it.
Can I get a mortgage if I am still paying off a bankruptcy?
Yes, if it is a Chapter 13 bankruptcy. You will need written permission from the bankruptcy court and proof that you are current on all payments under the plan. FHA allows this; conventional lenders are more restrictive. You cannot borrow during a Chapter 7 bankruptcy.
What if I do not have enough for a down payment right now?
FHA loans allow down payments as low as 3.5 percent, which is the lowest option available. If you cannot save that much, you might look into down payment information programs run by your state or local housing authority, though these have their own income limits and requirements. Some nonprofits also offer down payment help for low-income borrowers.
Does having a co-signer actually help if my credit is very low?
Yes, significantly. A co-signer with good credit allows the lender to consider their income and credit history, which can lower your interest rate and may allow you to borrow more. However, the co-signer is legally liable for the full debt, so they are taking on real risk. Make sure they understand this before they sign.