How to buy a home with bad credit: FHA loans, score requirements, and credit repair steps
A credit score below 620 doesn't have to end your homeownership plans. FHA loans allow scores as low as 500 with 10% down, and 580 with 3.5% down. This guide covers the minimum score requirements for every loan type, the credit repair steps that move the needle fastest, and how to get mortgage-ready in 6–12 months.
A credit score below 620 limits your options but does not eliminate them. FHA loans accept scores as low as 500, and a focused 12-month credit repair plan can move most borrowers from subprime to prime territory. Here is what actually moves the score — and what to do while you wait.
Minimum credit scores by loan type
| Loan type | Agency minimum | Typical lender overlay | Min down payment | MIP/PMI? |
|---|---|---|---|---|
| FHA (580+) | 580 | 580–620 | 3.5% | Yes — for life of loan (<10% down) |
| FHA (500–579) | 500 | Often 580 min | 10% | Yes — for life of loan |
| VA | None (official) | 580–620 | 0% | Funding fee only (no monthly MIP) |
| USDA | 640 (automated) | 640 | 0% | Yes — 0.35%/yr annual fee |
| Conventional | 620 | 620–640 | 3–5% | Yes until 80% LTV |
| Non-QM | 500 (varies) | Varies by lender | 20–30% | Often none (higher rate instead) |
Step-by-step: how to get mortgage-ready with bad credit
- 1Know your actual scores and what is hurting them
Get your free credit reports from all three bureaus at AnnualCreditReport.com (the only federally authorized free source). Check for: errors and inaccuracies (dispute these immediately — errors affect up to 25% of reports), collections and charge-offs, late payment history, high credit card utilization (balances above 30% of limits), and derogatory public records (judgments, bankruptcies). Order your FICO Score 2, 4, and 5 specifically — these are the mortgage-specific scores lenders use, not the VantageScore or generic FICO shown by most free services.
- 2Dispute errors and verify removals
File disputes directly with each credit bureau (Experian, Equifax, TransUnion) for any inaccurate information. Bureaus have 30 days to investigate. Effective disputes: accounts that aren't yours, incorrect late payment dates, balances that are wrong, collections that were paid but still show unpaid. Use certified mail with return receipt for written disputes. The CFPB dispute guide at consumerfinance.gov/credit-reports explains your rights under the Fair Credit Reporting Act (FCRA). Each successfully removed negative item can raise your score 20–50 points depending on severity.
- 3Pay down revolving credit balances aggressively
Credit utilization (balances ÷ limits) accounts for 30% of your FICO score. Getting all credit card balances below 30% of their individual limits is the single fastest score improvement for most borrowers. Getting below 10% is even better. Example: a card with a $5,000 limit at $4,000 balance (80% utilization) could drop your score 50+ points. Paying it to $400 (8% utilization) can recover those points within one billing cycle. Unlike removing derogatory marks, utilization changes reflect immediately when the lender reports the new balance.
- 4Understand the minimum score for each loan type
FHA loans: 580 minimum score for 3.5% down; 500–579 with 10% down. VA loans: no official minimum, but most lenders apply a 580–620 overlay. USDA loans: 640 minimum (for automated underwriting). Conventional (Fannie/Freddie): 620 minimum; 680+ for best pricing. Note that lender overlays often exceed agency minimums — many FHA lenders require 620. Shop multiple lenders: portfolio lenders and credit unions sometimes approve at lower scores than major banks. The CFPB rate comparison tool at consumerfinance.gov/owning-a-home/explore-rates shows how credit score affects rate.
- 5Build a 12-month on-time payment history
Payment history is 35% of your FICO score — the largest factor. Every on-time payment helps; every missed payment hurts significantly. Set up autopay for the minimum on all accounts to prevent future lates. If you have no credit, open a secured credit card (deposit-backed) or become an authorized user on a family member's well-managed account. A 12-month clean payment record post-derogatory event is the minimum lenders look for to see demonstrated credit rehabilitation — combined with score improvement, it shows the pattern has changed.
- 6Save a larger down payment to offset credit risk
A larger down payment compensates for a lower credit score in multiple ways: it reduces lender risk (lower LTV), reduces or eliminates mortgage insurance premiums, and demonstrates financial discipline. With a 580 score, FHA requires 3.5% down — but putting 10% down gets you slightly better terms. With a 500–579 score, FHA requires 10% down, and conventional is off the table. Saving more also gives your credit more time to improve. Every month of saving is another month of on-time payments and potential score recovery. Use the FHSA (Canadian buyers) or first-time buyer savings programs to accelerate.
Credit score improvement timeline (typical)
| Action | Time to reflect | Potential score impact |
|---|---|---|
| Pay credit card to <30% utilization | 1–2 billing cycles (~30–60 days) | +20–50 points |
| Dispute and remove error | 30–45 days after bureau confirms | +20–50 points per item |
| 12 months on-time payment history (new) | Ongoing — builds over 12 months | +30–60 points over time |
| Collection paid off (recent, <2yr) | 1–2 billing cycles | +10–30 points |
| Become authorized user on parent's card | 1–2 billing cycles | +15–40 points (if account is old, low utilization) |
| Open secured credit card | 6–12 months of use | +20–40 points (builds history) |
External references
- AnnualCreditReport.com — Free credit reports (all 3 bureaus)
- CFPB — Credit report and score resources
- HUD — FHA loan credit requirements
- FHFA — Loan-level price adjustments by credit score
- myFICO — Mortgage-specific FICO scores explained
Common questions
What is the minimum credit score to buy a house in 2027?
The lowest minimum is 500 — for FHA loans with 10% down. At 580+, FHA allows 3.5% down. Conventional loans require 620 minimum but lenders often overlay to 640+. VA loans have no official minimum but most lenders require 580–620. The score that matters for mortgages is your FICO Score 2/4/5 — the mortgage-specific versions used by lenders, not generic FICO 8 or VantageScore. These can differ from your "free" credit score by 20–50 points in either direction.
How much does a low credit score increase my mortgage rate?
Significantly. Loan-level price adjustments (LLPAs) on conventional loans add 1.5–3.5% in upfront cost (or equivalent rate increase) for scores below 660. On a $350,000 loan, a 620 score vs a 740 score might mean a 1.5% LLPA = $5,250 extra at closing or a rate 0.375–0.75% higher. FHA rates are less score-sensitive (FHA insures the lender), but FHA MIP is required for the life of the loan for most borrowers, adding ~0.55%/year. Use the FHFA LLPA matrix to calculate the exact cost for your score. Compare it against the mortgage calculator.
How long does it take to improve credit score enough to buy a house?
The timeline depends on what is hurting your score: (1) High utilization: 1–2 billing cycles to see improvement after paying down balances; (2) Errors on report: 30–45 days after successful dispute; (3) Recent late payments: 12–24 months of clean payment history needed to meaningfully offset; (4) Collections/charge-offs: paying off a collection doesn't remove it, but time-based aging plus new positive history improves the score over 24–48 months; (5) Bankruptcy: Chapter 7 stays on report 10 years; Chapter 13 stays 7 years. Most borrowers with scores in the 520–580 range can reach 620+ in 6–18 months with focused action. Read the full credit building guide.
Should I pay off collections before applying for a mortgage?
It depends on the collection type and age: (1) Medical collections: Under new CFPB rules effective 2024, medical collections are excluded from credit scoring in most models — they may not affect your mortgage score at all. (2) Collections in the last 2 years: Most lenders require these to be paid for FHA or conventional approval. (3) Old collections (5+ years): Paying an old collection may actually temporarily lower your score by "refreshing" the account activity date — get advice before paying. (4) Lender requirement: Always ask your lender specifically — FHA guidelines have changed, and some lenders require all collections paid regardless of age. CFPB credit repair resources.
Can I get a mortgage after bankruptcy?
Yes — with waiting periods: FHA after Chapter 7: 2-year waiting period from discharge, with re-established credit; FHA after Chapter 13: 1 year of on-time plan payments + court trustee approval; Conventional after Chapter 7: 4-year waiting period; Conventional after Chapter 13: 2-year waiting from discharge (4 years from filing). VA loans follow similar waiting periods. The waiting periods start from the discharge date (not the filing date for Chapter 7). During the waiting period, focus on rebuilding credit to 620+ with a secured card, on-time payments, and low balances. HUD FHA after bankruptcy guidelines.
What is a non-QM loan and can it help buyers with bad credit?
Non-QM (non-qualified mortgage) loans are products that fall outside the CFPB's Qualified Mortgage framework — they may have higher DTI limits, alternative income documentation, or different credit requirements than conventional and FHA loans. Some non-QM programs accept scores as low as 500 with 25–30% down. However: non-QM rates are significantly higher (often 1–3% above market), origination costs are higher, and the product selection is smaller. Non-QM is worth exploring only if: (1) you have substantial equity/down payment, (2) you have strong income despite low score, and (3) you have a clear plan to refinance into a conventional loan within 2–3 years once your credit is rebuilt. Always compare the total cost carefully.
Read the full credit building guide, check FHA payment estimates on the mortgage calculator, or review how credit score affects your rate.