Home Loans for Bad Credit

Written by: Eric Bank

Eric Bank

Eric Bank has been covering business and financial topics since 1985, specializing in taking complex subject matters and explaining them in simple terms for consumer audiences. Eric's writing regularly appears on Credible.com, eHow, WiseBread, The Nest, Get.com, Zacks, Chron, and dozens of other outlets. A former software engineer, Eric holds an M.B.A. from New York University and an M.S. in finance from DePaul University.

Edited by: Lillian Guevara-Castro

Lillian Guevara-Castro

Lillian brings more than 30 years of editing and journalism experience, having written and edited for major news organizations, including The Atlanta Journal-Constitution and the New York Times. A former business writer and business desk editor, Lillian ensures all BadCredit.org content equips readers with financial literacy.

See full bio »

Reviewed by: Ashley Dull

Ashley Dull

Ashley has managed content initiatives for BadCredit since 2015, having worked closely with the world’s largest banks and financial institutions, as well as press and news outlets, to publish comprehensive content. Her credit card commentary is featured on national media outlets, including CNBC, MarketWatch, Investopedia, and Reader's Digest.

See full bio »

Finding a home loan with bad credit can be challenging, but the services below offer financing options specifically for those with a less-than-perfect credit history. Our experts have reviewed and rated the top subprime lenders and ranked them below based on reputation, terms, and other factors. Unlike most banks and lenders, these bad credit mortgage loan companies are known to approve poor-credit applicants online:

Advertiser Disclosure
  • Get today's mortgage rates from the top mortgage lenders and banks
  • Easily compare and choose mortgage lenders with no obligations or fees
  • Review current mortgage rates side by side
  • Pick mortgage lenders that meet your specific needs
  • Compare rates from pre-qualified and approved mortgage lenders — 100% online, 100% free
  • See application, terms, and details.
★★★★★

4.8

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1979 4 minutes 8.5/10
  • Rocket Mortgage is America's largest mortgage lender
  • The entire process is completed online
  • Options for new mortgages and refinancing existing mortgages
  • Award-winning customer service and cutting-edge digital platforms
  • More than 90% of clients would recommend us
  • See application, terms, and details
★★★★★

4.8

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1985 5 minutes 9.5/10
  • Options for home purchase or refinance
  • Get 4 free refinance quotes in 30 seconds
  • Network of lenders compete for your loan
  • Trusted by 2 million+ home loan borrowers to date
  • Interest rates are near all-time lows
  • See application, terms, and details.
 
★★★★★

4.7

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 2004 4 minutes 8.5/10
  • Quicken offers home equity lines of credit that can be used for home improvements, large purchases, and other expenses
  • 15% to 20% equity in your home is required
  • A relatively low-cost way to obtain access to additional funding
  • You'll make minimum payments during the draw period and larger payments during the repayment period
  • A HELOC is a second mortgage
  • See application, terms, and details
★★★★★

4.6

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1985 5 minutes 9.5/10
  • Easy to OwnSM programs give options for those with lower income, limited credit history, and low down payment needs.
  • Provides the potential for minimal out-of-pocket expenses with seller contributions.
  • Offers loans that don't require monthly mortgage insurance.
  • Requires less cash upfront for your down payment and closing costs.
  • See application, terms, and details.
★★★★★

4.5

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1852 6 Minutes 8.0/10
  • Loan programs include down payment and closing cost assistance.
  • Variable and Fixed-Rate loans available with flexible qualification guidelines.
  • Up to 100% financing—with as little as zero down payment for qualified borrowers.
  • No maximum income/earning limitations.
  • See application, terms, and details.
★★★★

4.4

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 2008 5 Minutes 7.0/10
  • Low or no down payment required; flexible credit guidelines.
  • Seller can contribute up to 6% of sales price.
  • Streamlined refinance programs that speed the closing process.
  • Closing costs can be rolled into the loan.
  • Opportunities Within Neighborhoods (OWN) programs offer low down payment options, flexible credit criteria and other attractive features to meet the needs of many low- and moderate- income borrowers and those purchasing homes in low- and moderate - income areas.
  • See application, terms, and details.
★★★★

4.3

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1998 9 Minutes 8.0/10
  • Offers 100% Financing, Low rates and Affordable Payments.
  • Helps lenders work with low and moderate income families living in rural areas to make home ownership a reality.
  • Loans can be used for repairs and rehabilitation; physical disability equipment; connection fees, assessments or installment costs for utilities; and essential household equipment.
  • Loans can include closing costs and reasonable/customary expenses associated with the purchase
  • See application, terms, and details.
★★★★

4.0

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies 1897 9 Minutes 9.0/10
  • For military veterans, service members, their spouses, and other eligible beneficiaries only
  • No down payment and no monthly mortgage insurance
  • The basic entitlement available to each eligible veteran is $36,000
  • Lenders generally loan up to 4 times a veteran's available entitlement without a down payment
  • See application, terms, and details.
★★★★

4.0

Overall Rating

Interest Rate In Business Since Application Length Reputation Score
Varies by Applicant 1944 9 Minutes 7.5/10

Advertiser Disclosure

BadCredit.org is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free for users, we receive advertising compensation from the financial products listed on this page. Along with key review factors, this compensation may impact how and where products appear on the page (including, for example, the order in which they appear). BadCredit.org does not include listings for all financial products.

Our Editorial Review Policy

Our site is committed to publishing independent, accurate content guided by strict editorial guidelines. Before articles and reviews are published on our site, they undergo a thorough review process performed by a team of independent editors and subject-matter experts to ensure the content’s accuracy, timeliness, and impartiality. Our editorial team is separate and independent of our site’s advertisers, and the opinions they express on our site are their own. To read more about our team members and their editorial backgrounds, please visit our site’s About page.

Review Breakdown: Home Loans

Best Home Loans Bad Credit

As many homeowners can tell you, not all mortgages are created equal. This is especially true for those with a poor credit history, whose options are limited to just a handful of lenders willing to take a risk on financing a subprime applicant. Below is a summary of the top lenders and services we recommend for people with poor credit, along with key stats and ratings for each. To apply online for a new mortgage, refinance, cash-out, or virtually an other type of home loan, simply click the name of the provider you prefer to visit its website.

Here are 2022's best home loans for bad credit:

Rank Home Loan Business Since Application Length Expert Rating
1 eMortgage 1979 4 minutes ★★★★★4.8
2 Rocket Mortgage 1985 5 minutes ★★★★★4.8
3 FHA Rate Guide 2004 4 minutes ★★★★★4.7
4 Quicken HELOC 1985 5 minutes ★★★★★4.6
5 Wells Fargo Home Mortgage 1852 6 Minutes ★★★★★4.5
6 Bank Of America Mortgage 2008 5 Minutes ★★★★4.4
7 CitiMortgage 1998 9 Minutes ★★★★4.3
8 USDA Rural Housing Loans 1897 9 Minutes ★★★★4.0
9 VA-Guaranteed Home Loan Program 1944 9 Minutes ★★★★4.0

9 FAQs About Home Loans For Bad Credit

Eric Bank

Eric Bank, Finance Writer

Updated:

It can be quite a challenge to find home loans for bad credit. Fortunately, you have several loan options despite your low credit score.

We’ve assembled the answers to nine frequently asked questions that can help you understand your borrowing alternatives. The bad credit home loan providers we identify regularly approve applicants with low credit scores.

1. What Is a Home Loan For Bad Credit?

Mortgages and home equity loans are available to consumers with bad credit. First mortgages pay for the purchase of a home, whereas home equity loans (or second mortgages) let you cash out some of the equity you’ve built since you bought your home.

Bad credit mortgages may have features that make home purchases easier. For example, federally guaranteed mortgages often have low minimum down payments.

2. Can I Get a Mortgage With Poor Credit?

Consumers with poor credit (i.e., FICO scores below 600 within a 300 to 850 range) can access mortgage loans but may have to pay higher interest rates. Many mortgage lenders tolerate less than perfect credit, but only up to a point.

Federally sourced or guaranteed mortgages generally accept lower scores than do private ones.

Mortgage Requirements

Private lenders also offer mortgages for folks with bad credit. Some have features unavailable from federal loans, including 100% financing (i.e., no down payment), seller contributions, no income limits, and no mortgage insurance requirement.

When shopping for a bad credit mortgage, keep a few things in mind:

  • Minimum credit scores vary among lenders.
  • You must generally be two or more years past bankruptcy and three years from a home foreclosure.
  • You won’t be eligible if you owe back taxes to the IRS or are behind on your student loan payments.

Less than perfect credit, especially with outstanding debt, can limit the loan amount even the best mortgage lender will offer you. If your home shopping can wait, you can use the time to raise your low credit score by paying your bills on time and reducing your debt. Doing so will broaden your mortgage options and may lower the mortgage rate you’ll have to pay.

3. What Are the Different Types of Mortgages Available?

Almost all mortgages, including federally guaranteed ones, originate from banks, credit unions, or thrift institutions. In addition, federal agencies act as the direct lender for a few types of mortgages.

Online mortgage sites, such as Rocket Mortgage, New American Funding, and Quicken Loans, may directly originate loans, but others (e.g., eMortgage) match loan requests to a network of lenders.

To get some sense of the enormity of the national mortgage industry, consider these statistics for 2021:

  • Total originations: $4.4 trillion, a record
  • Purchase loans: $1.7 trillion, also a record
  • Total refinancings: $2.7 trillion, of which $1.2 trillion were cash-out refis, the most since 2005
  • Equity cashed out: $275 billion

The average mortgage rate in 2021 was 2.96%.

Definitions

The mortgage industry has its own lingo:

  • Conventional Loans: Home loans that the federal government does not guarantee.
  • Conforming Loans: These loans adhere to FHFA (Federal Housing Finance Agency) standards governing maximum debt, minimum credit, and maximum loan amount. In 2022, the baseline conforming loan limit is $647,200 but reaches $970,800 in high-cost areas.
  • Non-Conforming Loans: Loans that don’t conform to FHFA standards. For example, the home may cost more than the maximum conforming loan amount, or the borrower may have subprime credit.
  • Jumbo Loans: These non-conforming loans are for amounts above the FHFA limit.
  • Government Insured Loans: Includes VA, USDA, and FHA loan programs, as described below.
  • Fixed-Rate Mortgages: Loans that do not enact a lower or higher interest rate throughout the loan term. Your monthly mortgage payment doesn’t change unless you refinance.
  • Adjustable-Rate Mortgages (ARM): The interest rates on these loans can change over time according to market conditions. ARMs often have a fixed interest rate for the first few years before switching to a variable, higher interest rate. The variable rate may have yearly and overall caps.
  • Loan Term: The amount of time borrowers have to repay the loan. Typically, loan terms vary between eight and 30 years, but other periods are possible. Mortgages may impose penalties for early pay-off.
  • Debt-to-Income Ratio (DTI): DTI equals your monthly debt payments divided by your monthly income. Your DTI should be below 46% to qualify for a mortgage.
  • Loan to Value Ratio (LTV): LTV equals the mortgage size compared with the home’s value. The larger the down payment, the lower the LTV.
  • Private Mortgage Insurance (PMI): Lenders usually require you to buy PMI when your down payment is less than 20%. Once you achieve 20% equity, you can cancel your PMI.
  • Mortgage Insurance Premium: The FHA loan program equivalent to PMI.
  • Seller Concession: The seller pays some or all of the buyer’s closing costs, including title charges, state and local government fees, lender costs, and home/pest inspections.

When shopping for a mortgage, consider the credit requirements, interest rate, fees, loan size, loan term, rate adjustability, and required down payment.

It’s an excellent idea to prequalify for a mortgage before starting your home search so you can make an immediate offer when you find the right property. Sellers usually prefer bids backed by preapproved funding.

Conventional Mortgages

A bank, credit union, or similar mortgage lender often sells its conventional loans to government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac, that impose specific baseline requirements.

Conventional mortgage providers require borrowers to meet higher credit standards because the federal government doesn’t insure these loans against default. By selling their mortgages to GSEs, lenders remove uninsured loans from their portfolios and receive an immediate cash payment.

The minimum GSE-imposed requirements for conventional conforming loans are:

  • A credit score of at least 620
  • A debt-to-income ratio of no more than 45%
  • A minimum down payment of 3%, or 20% with no PMI
  • A real estate appraisal verifying the home’s value and condition

If you require a mortgage that exceeds the conforming limit, you’ll need to increase your down payment or apply for a jumbo loan.

GSEs offer multiple conventional loan programs with differing requirements. For example, a Fannie Mae 97% LTV Standard Mortgage requires one borrower to be a first-time homebuyer.

Freddie Mac Home Possible Loans do not have the first-time homebuyer requirement but limit eligibility to borrowers with very low, low, or moderate income.

If the home you want to buy receives an appraisal for less than the contract price, your options include:

  • Renegotiating the price
  • Increasing your down payment
  • Appealing the appraisal
  • Applying for a larger mortgage
  • Withdrawing your bid

If you fail to keep up with your payments, the mortgage lender may initiate foreclosure proceedings. Unless you immediately get current on your payments, the lender will foreclose on your home, and you’ll lose all your equity.

FHA-Insured Home Loans

The Federal Housing Administration backs loans from conventional mortgage lenders. The FHA encourages loan officers to approve subprime borrowers by insuring loans.

The requirements for FHA mortgage insurance include:

  • A down payment of 10% for credit scores between 500 and 579
  • A down payment of 3.5% for credit scores of 580 or higher
  • An MPI when your down payment is less than 20%
  • A DTI below 44%
  • A minimum credit score of 500
  • A two-year history of steady income and employment
  • An FHA-approved appraiser’s inspection report on whether the real estate meets the minimum standards for safety, security, and soundness
  • The home must be your primary residence
  • You must occupy the home within 60 days of closing

Each year, the FHA sets mortgage size limits for low- and high-cost areas. In 2022, those limits are $420,680 and $970,800, respectively, for one-unit properties. If you live in Alaska, Hawaii, Guam, or the Virgin Islands, the limit is $1,456,200.

VA Home Loans for Veterans

The Department of Veterans Affairs (VA) guarantees mortgages for the US military’s active and retired members (and eligible surviving spouses). VA loan programs have lenient requirements that include:

  • No minimum credit score, although lenders generally require a FICO score above 620
  • No need for a down payment or PMI
  • A DTI below 42%

VA loan programs feature low interest rates and closing costs. The agency also offers refinancing loans (cash-out or interest rate reduction), and direct loans to Native Americans are available.

USDA Rural Home Loans

The United States Department of Agriculture offers direct and guaranteed rural home loans to homebuyers with low or average incomes. USDA loan requirements include:

  • The property must be your primary home and be located in an eligible rural area (typically, an area with a population below 20,000)
  • No need for a down payment
  • Your income cannot exceed the local median by more than 15%
  • PMI when equity is below 20%
  • No minimum credit score nor requirement for a credit history
  • The maximum DTI is generally 41%, but higher ratios may be acceptable if you have a good credit score and stable employment
  • No fixed loan size limits. Instead, your loan limit depends on your income and DTI ratio.
  • All mortgages are 30-year, fixed-rate loans

USDA loan programs charge low interest rates, sometimes even lower than FHA mortgage rates. These loans permit seller concessions, and buyers can receive gifts to help pay closing cost expenses.

4. How Does Mortgage Interest Work?

Mortgages are amortizing loans, meaning:

  • A portion of your monthly mortgage payment reduces your loan principal, and the remainder is an interest charge.
  • For fixed-rate mortgages, the monthly payments remain the same throughout the loan term. The monthly amount may change if you have an adjustable-rate mortgage.
  • The payment principal and interest proportions vary over time. In the first few years, payments overwhelmingly consist of interest charges, but, eventually, principal payments predominate.
  • Your mortgage documents will include an amortization schedule specifying each payment’s principal and interest amounts.

The mortgage principal equals the home’s purchase price (plus any fees rolled into the loan) minus your down payment. For example, suppose you purchase a home for $380,000 and put down 20% ($76,000). If you take out a 30-year, fixed-rate loan for $304,000 with a 5% interest rate:

  • Your monthly payment will be $1,631.94, plus any escrow amounts (for property taxes, homeowners association fees, homeowners insurance, etc.).
  • Your total mortgage interest will be $283,497.58 if you pay off the mortgage in 30 years (i.e., 360 payments).
  • Your total mortgage payments will be $587,497.58, almost double the original loan principal.

You must repay the entire loan principal to retire your mortgage. If you repay the mortgage ahead of time, you’ll save on interest charges, but the lender may impose a prepayment penalty fee to discourage you.

Lenders want to collect the total interest due unless prevailing rates have risen above your contract rate. In that case, lenders make more money by issuing new mortgages instead of collecting interest on existing ones, and they may waive the penalty.

5. Which Factors Affect the Size of My Mortgage?

Mortgage providers consider several factors when deciding how much to lend you, including your income, current debts, credit report, and the required monthly payments.

Income

It’s advantageous to list all income sources when applying for a mortgage. Include available income from other household members and non-work sources, such as savings, investments, annuities, and retirement accounts.

Lenders value reliable income (i.e., stable and increasing over the previous two years). You will probably have to document your income by providing tax returns, pay stubs, W-2 forms, and brokerage, bank, or credit union statements.

Current Debts

Income has relevance only in the context of your financial obligations — the amount you spend each month to pay debts, housing costs, and other required amounts. Mortgage lenders rely heavily on DTI ratios to gauge your ability to make the required monthly home loan payments. Paying down existing debts before applying for a mortgage is a wise move.

Credit History

Your low credit score does not instill lenders with the confidence that you’ll repay a loan on time. Nonetheless, many lenders specialize in home loans for subprime consumers.

These lenders reduce their exposure to default risk by limiting loan amounts and charging higher interest rates and fees.

To some extent, a credit report free of recent negative items can help overcome earlier financial mistakes. Better yet, you’ll access better home loans if you can first raise your bad credit score by paying your bills on time, reducing your debt, and fixing derogatory errors in your credit file.

Property’s Monthly Principal, Interest, Taxes, and Insurance

A mortgage loan must be large enough to pay for your property purchase (minus your down payment) plus any rolled-in charges such as closing cost fees. You can reduce your out-of-pocket expenses when you roll fees into your mortgage principal. But keep in mind that you’ll pay interest on those fees for the life of the mortgage.

When considering your application, even the best mortgage lender looks at your total monthly payments to the loan processor, including escrowed and other expenses. Your monthly bill will include these expenses, which may add hundreds of dollars to each payment.

The loan officer must evaluate whether you can afford the total monthly bill, not just the loan principal and interest.

6. How Does a Down Payment Affect a Home Loan?

A down payment reduces the size of the loan you need. The larger the down payment, the less principal and interest you’ll have to pay back.

Many lenders require mortgage insurance when your down payment is less than 20%. This insurance repays the lender if you default on your loan. You can cancel the insurance when your equity in the property reaches 20%.

7. What Is a Home Equity Loan?

A home equity loan, or second mortgage, is an additional loan collateralized by your home. Your equity is the current value of your home minus the money you owe on the property (including home equity loan balances, if any).

The two contributors to your home equity are:

  • The principal portion of your monthly mortgage payments, which in the early years is small compared with your interest charges
  • Any increase in the price your home could fetch if you put it up for sale

For example, suppose your home can sell for $300,000, and you owe $220,000 on your mortgage. Your current equity is ($300,000 – $220,000), or $80,000. You can usually cash out up to 80% of your equity through a home equity loan, as lenders usually want a cushion against unforeseen expenses or sudden decreases in the home’s selling price.

A home equity loan provides you with a lump sum cash payment to use however you want. Your increased debt means you’ll face two monthly housing bills, assuming you haven’t already repaid your first mortgage. Failure to repay your home equity loan can precipitate foreclosure proceedings.

A home equity loan term can range from five to 30 years. As with a first mortgage, a home equity loan is an amortizing debt with a payment schedule consisting of principal and interest.

Alternatively, you can cash out your home equity by refinancing your mortgage. A cash-out refi involves taking out a new mortgage for an amount greater than your current mortgage balance. You use part of the new loan to repay the old one and the rest as you please.

Expect to pay closing costs, such as origination and title search fees, when refinancing a mortgage.

8. What Is a Home Equity Line of Credit?

A home equity line of credit, or HELOC, shares characteristics with home equity loans and credit card cash advances. As with an equity loan, a HELOC uses the equity in your home as collateral.

You can establish a line for up to 100% of your equity, although many lenders require a lower LTV ratio.

Equity Loans vs. Lines of Credit

Similar to credit card cash advances, a HELOC lets you draw from a substantial revolving line of credit. You only owe interest on the amount you borrow. You must pay at least the minimum amount due each month.

A HELOC open balance reduces the remaining amount you can borrow. As you repay the credit line, your available credit increases. Conversely, you can continue to draw down your HELOC until you exhaust the remaining credit or your draw period ends. That’s fine as long as you make your monthly payments on time.

9. Can I Get a Home Loan With a Credit Score of 400?

Only a few lenders will greenlight a bad credit home loan to a borrower with a 400 credit score. It may be possible in a few circumstances:

  • The VA and USDA do not impose minimum credit score requirements on the home loans it guarantees. But the underlying lender may (and probably does) specify a minimum score. USDA mortgages are available in about 97% of the geographical United States.

USDA Eligibility Map

  • You may be able to overcome a lower credit score if you substantially overcollateralize the loan. If you keep the LTV low (e.g., 50%), the lender will be better assured of repayment should you default on the loan.
  • A cosigner with solid credit can work magic. Lenders value cosigners because they are another payment source should you fall behind. Cosigners can make your bad credit score irrelevant.

On the positive side, if you do land a mortgage despite your low credit score, you’ll boost your score by paying your loan on time. But late payments can sink your score even deeper.

About The Author

Eric Bank
Eric Bank Finance Writer

Eric Bank has been covering business and financial topics since 1985, specializing in taking complex subject matters and explaining them in simple terms for consumer audiences. Eric's writing regularly appears on Credible.com, eHow, WiseBread, The Nest, Get.com, Zacks, Chron, and dozens of other outlets. A former software engineer, Eric holds an M.B.A. from New York University and an M.S. in finance from DePaul University.

Information Warranty & Disclosure: Great efforts are made to maintain reliable data on all offers presented. However, users should check each provider’s official website for updated terms, details and conditions for each offer before applying or signing up. Our site maintains strict terms of service and may accept compensation for paid ads or sponsored placements in accordance with these terms. Users must be at least 18 years of age to be eligible for financial offers as per the terms presented on provider websites.

* FICO scores/credit scores are used to represent the creditworthiness of a person and may be one indicator to the credit type you are eligible for. However, credit score alone does not guarantee or imply approval for any financial product.