Bad credit doesn't automatically disqualify you from a mortgage, but it significantly limits your options and increases costs. Here is what is realistically possible and when you should wait to improve your score.
Bad credit doesn't automatically disqualify you from a mortgage, but it significantly limits your options and increases costs. Here is what is realistically possible and when you should wait to improve your score.
| Credit Score | Best Options | Min Down | Rate Impact |
|---|---|---|---|
| 580–619 | FHA (some lenders), VA | 3.5% (FHA), 0% (VA) | +1–1.5% vs 740 score |
| 500–579 | FHA with 10% down, VA (lender dependent) | 10% (FHA) | +1.5–2% vs 740 score |
| Below 500 | Non-QM hard money, wait & rebuild | 20–30%+ | +3–5%+ rate |
FHA allows credit scores as low as 500 with 10% down payment. However, while the FHA itself allows this, many FHA-approved lenders impose "overlays" — internal minimums of 580–620 — that are stricter than FHA guidelines. To find FHA lenders who approve 500–579 scores, you may need to contact specialty lenders or mortgage brokers who can access a wider lender network.
VA loans have no official minimum credit score. Individual VA lenders typically require 580–620. Because VA backs the loan against default, some lenders are more flexible. Veterans with scores of 550–579 have successfully obtained VA financing from specialty lenders. Residual income and strong compensating factors help.
Non-QM lenders operate outside Fannie Mae/Freddie Mac guidelines and may approve borrowers with scores of 500–580 — at significantly higher rates (9–12%+) and with 20–30% down payment. These loans are expensive and should only be used as a bridge while you rebuild credit to qualify for conventional financing.
If your credit is below 580 and you're not a veteran, the math often favors waiting 6–12 months to rebuild your credit score. The difference between a 560 score (9%+ rate on non-QM, 20% required down) and a 620 score (FHA at ~7.5%, 3.5% down) is enormous. Improving your score first can save you tens of thousands.