What Is Considered Bad Credit?
Before jumping into the steps, it’s important to understand what “bad credit” actually means.
Excellent: 750–850
Good: 700–749
Fair: 650–699
Poor: 600–649
Very Poor: 300–599
If your score falls below 650, lenders may consider you a “subprime” borrower, which can result in higher interest rates or fewer loan options.
Step 1: Know Your Credit Score
Your first move should be checking your credit score and report. You can get a free credit report annually from each of the three major credit bureaus (Equifax, Experian, and TransUnion).
Why it matters:
Knowing your exact score helps you understand what mortgage programs you might qualify for and where to start improving.
Quick Tip:
Dispute any errors on your credit report — they could boost your score quickly.
Step 2: Save for a Larger Down Payment
A larger down payment can offset your credit risk in the eyes of lenders.
Here’s how it helps:
Shows financial discipline
Lowers the loan-to-value ratio
Reduces the lender's risk
Might eliminate the need for private mortgage insurance (PMI)
Aim for at least 10%–20% down if possible, though some lenders may accept less.
Step 3: Explore Government-Backed Loan Programs
Some loan programs are more lenient with credit scores:
FHA Loans
Backed by the Federal Housing Administration
Allow credit scores as low as 500 with 10% down or 580 with 3.5% down
VA Loans (for veterans and service members)
No minimum credit score (though lenders usually want at least 580–620)
No down payment required
No PMI
USDA Loans
For homes in rural areas
Generally require a score of 640+
0% down payment
Step 4: Get Pre-Approved for a Mortgage
Getting pre-approved helps you:
Understand how much home you can afford
Show sellers you're serious
Spot potential issues early
Work with a mortgage broker or lender who specializes in bad credit loans. They’ll help find programs that fit your financial profile.
Step 5: Reduce Your Debt-to-Income Ratio (DTI)
Lenders want to know you can manage new payments alongside existing debt. Your DTI (monthly debt payments divided by gross monthly income) should ideally be under 43%.
Steps to lower DTI:
Pay off credit cards
Refinance or consolidate loans
Increase your income (even temporarily)
Step 6: Gather Strong Documentation
With bad credit, you need to prove your financial reliability in other ways. Be ready with:
Pay stubs or proof of income
Tax returns for the past 2 years
Proof of savings
A letter explaining credit issues (job loss, illness, etc.)
This extra documentation helps lenders understand your situation and may sway their decision.
Step 7: Find a Realtor Experienced with Credit-Challenged Buyers
Not all agents are equally equipped to handle buyers with low credit. Look for someone who:
Understands loan programs for bad credit
Has connections with flexible lenders
Can help negotiate seller credits or closing cost assistance
Their expertise can help you avoid costly mistakes.
Step 8: Consider a Co-Signer (If Needed)
If you’re unable to qualify on your own, a trusted family member or partner with strong credit may be able to co-sign your mortgage. This boosts your application by leveraging their creditworthiness.
Important: The co-signer is legally responsible if you miss payments, so only go this route if you're sure you can afford the loan.
Step 9: Start Small and Build Equity
You don’t have to buy your dream home right away. Starting with a smaller, more affordable home can help you:
Build equity
Improve your credit
Refinance later into a better mortgage
Once your finances are stronger, you can upgrade.
Step 10: Keep Improving Your Credit After Purchase
Your credit journey doesn’t stop after closing. On-time mortgage payments can significantly boost your score. Also:
Avoid new debt during the home-buying process
Use credit wisely
Set reminders to pay bills on time
In a few years, you may be eligible for refinancing at a better rate.
Final Thoughts
Buying a house with bad credit may take extra time, effort, and planning — but it’s absolutely achievable. Focus on understanding your finances, exploring your loan options, and working with the right professionals.
If you’re determined, disciplined, and informed, your credit score doesn’t have to keep you from the home you deserve.
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