Buying a House with Bad Credit: Can It Be Done?

man with a calculator in his hand

Your credit score plays a huge role in your ability to get to mortgage — not to mention how easy the process is and what interest rates you’ll qualify for.

Are you worried your credit isn’t good enough?

You’re not alone. Many would-be homeowners fear their credit scores will mean sky-high rates and massive down payment requirements or, worse, won’t qualify them for a mortgage loan at all.

Fortunately, neither of these have to be true — as long as you choose the right loan option.

Your Mortgage Loan Options if You Have Bad Credit

If you’re looking to buy a home but have poor credit, then choosing the right loan option is crucial. Not only will it make your application process easier, but it could mean the difference between getting that dream home and losing it.

FHA loans

Loans backed by the Federal Housing Administration can be a good choice if you have bad credit. FHA loans allow credit scores as low as 580.

The one catch? FHA loans require mortgage insurance. This tacks on an extra fee at closing and increases your monthly payments.

Beyond by Embrace

At Embrace, we actually offer a loan program designed specifically for non-traditional borrowers — those with lower credit scores or who are self-employed. As long as you have a FICO score of 580 or above, you’re eligible to apply, and the best part? We require no private mortgage insurance whatsoever.

Beyond loans can even be used for larger purchases (they go up to $3 million) or business purposes.

Other Government Loans

In addition to FHA loans, other government loans like VA and USDA mortgages can also be a good move for low-credit borrowers. VA loans, which are designed for veterans and military members, require a credit score of 620 or higher, while USDA loans require a 640. (USDA loans can only be used if you’re buying a house in certain, designated rural areas of the country.) The benefit of both of these is that they require low or even no down payments.

Other Ways to Help Your Case

Increasing your credit score is a great way to better your chances at securing a mortgage — but that’s easier said than done, right?

Actually, maintaining healthy credit is likely simpler than you think. For some people, it may be as easy as pulling your credit report, looking it over, and reporting any errors you find to the credit bureau (Experian, TransUnion or Equifax). For others, it may mean:

  • Paying down your existing debts. Have high credit card bills? Car loans? Student loans? Work on paying down those balances.
  • Always pay on time. Make it a point to pay every bill on time, every time — even if it means automating your payments or setting up a monthly alarm or reminder. Late payments can ding your score significantly.
  • Avoid taking out any new loans or lines of credit. Getting tempting credit card applications in the mail? Rip them up. Thinking of buying a new car? Wait until you’ve closed on your mortgage. Taking out new debt will only hurt your score and your chances of buying a home.

You can also increase your down payment. If you can afford to, consider increasing your down payment. It might help your interest rate, too. Generally, you’ll need to make at least a 10 percent down payment if you want a better chance of offsetting your low credit score. There are a lot of factors that determine interest rate, though, so your credit score is not the only factor at play.

The Bottom Line

The moral of the story is simple: bad credit doesn’t preclude you from buying a home. With the right lender, the right loan option and the right amount of preparation, homeownership is well within reach.

Want to learn more about our Beyond program for low-credit homebuyers? Contact an Embrace Home Loans team member today.

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Aly Yale

Aly J. Yale is a freelance writer focusing on real estate, mortgage, and the housing market. Her work has been featured in Forbes, Bankrate, The Motley Fool, Business Insider, The Balance, and more. Prior to freelancing, she served as an editor and reporter for The Dallas Morning News. She graduated from Texas Christian University's Bob Schieffer College of Communication with a major in radio-TV-film and news-editorial journalism. Connect with her at or on Twitter at @AlyJwriter.