Bad credit? These lenders might be able to help
Just because your FICO score isn’t as good as you’d like, doesn’t mean you’re stuck with a bottom-tier mortgage lender.
In fact, some of the very best lenders out there are willing to help borrowers with credit scores near or below 600.
Of course, not everyone will qualify. And your rate will be higher than a “prime” mortgage borrower.
But you can still shop around for the best interest rate, fees, and customer service, just like any other home buyer.
Here’s where we recommend starting your search.
|Company||Minimum Credit Score||Stands Out For|
|New American Funding||580||Low credit minimum, top-rated service|
|Guaranteed Rate||580||Lowest rates on average|
|Freedom Mortgage||540||Low credit minimum|
|Caliber||580||Highly rated customer service|
|Navy Federal Credit Union*||580 but exceptions possible||Flexible credit requirements for veterans|
*Navy Federal Credit Union only serves veterans, active-duty service members, and select military-affiliated personnel
Editor’s note: The Mortgage Reports may be compensated by some of these lenders if you choose to work with them. However, that does not affect our reviews. See our full editorial disclosures here.
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The 6 best bad credit mortgage lenders
1. New American Funding
We liked New American funding when we wrote its full lender review. And we still do. But what gave it our #1 slot?
To start with, New American Funding (NAF) examines each mortgage application on its own merits rather than taking a tick-box approach.
That means it can sometimes be more sympathetic to those who’ve had financial problems in the past, including credit issues.
Additionally, NAF offers:
- Competitive mortgage rates, on average
- Strong customer reviews and very few complaints
- A wide range of types of mortgages, including FHA loans with a minimum credit score requirement of 580.
- Flexible customer service: in-branch, online, by phone, or any combination
- Fast turnaround. NAF says, “We guarantee that your loan will close in 14 business days. Period,” according to its website (this includes purchase mortgages only; not refinances)
- A constructive approach to down payment assistance programs
- An A+ rating with the Better Business Bureau (BBB)
- A bilingual call center with English and Spanish
The only big drawback to New American Funding is that it’s not licensed to lend in New York state or Hawaii.
But if you live in any of the other 48 states, this lender is likely worth a look for a bad credit home loan.
2. Guaranteed Rate
Guaranteed Rate may not be quite as skewed toward borrowers with bad credit as New American Funding. But it still approves applications from people with scores as low as 580.
And it’s strong in other respects:
- Highly competitive mortgage rates and origination costs
- Excellent reputation for customer service and few complaints
- A comprehensive range of mortgage products
- Licensed to lend in all 50 states
- A+ BBB rating
- 300-strong branch network if you prefer to work face to face
- Highly praised technologies deliver a good online experience
Guaranteed Rate had the second-lowest average mortgage rate among our top lenders in 2019. (The lowest of all was Navy Federal Credit Union, but it’s only available to veteran and military borrowers.)
Of course, if your credit is on the low end, your rates will likely be above average.
But when you start with a lender that’s known to offer low rates, you may have a better chance at getting a good deal.
3. Freedom Mortgage
Although Freedom Mortgage is an expert at VA loans (those for veterans and service members), it offers a good range of other mortgage products.
Freedom Mortgage may even approve FHA loans for some borrowers with scores as low as 540. Here’s what else you need to know:
- Rates are generally competitive, though average loan fees are a bit higher than some other lenders on this list
- Takes into account “non-traditional credit histories.” So if you have a sparse credit history, it may look at on-time payments for things like rent, utilities and so on, which don’t typically appear on credit reports
- Praised for customer service on many online forums
- Traditional, personalized approach, meaning you can expect more face-to-face or phone encounters. There’s not much of an online experience
- Licensed in all states and has branches in 26
It’s definitely worth getting a personal quote from Freedom, especially if you’re a veteran or service member in the market for a VA loan.
Like many on this list, loanDepot is a fairly recent, tech-first mortgage lender.
loanDepot has only been around since 2010, but during that time it’s grown to the fourth biggest mortgage originator in the US, largely on the back of its innovative lending technologies.
Here’s the lowdown:
- Minimum credit score of 580
- The 5th highest score in J.D. Power’s 2020 mortgage origination satisfaction study and an A+ BBB rating
- Typically has very fast loan processing with many parts of the lending process automated
- Not the lowest rates or fees on our list, but generally competitive
- Higher rate of CFPB complaints than most on our list
- Licensed in all states with branches in 43 states
- A wide portfolio of loan types
If you’re a big fan of technology and prefer an online application process, loanDepot may be a good option for you.
5. Caliber Home Loans
Caliber delivers a much more personalized and engaging sort of customer service than those who encourage more online interactions.
It has some slick technologies in its back office and may offer faster-than-average closing times. But you’ll be dealing with a person rather than a screen.
Here’s what to expect from Caliber Home Loans:
- Competitive rates and costs
- Minimum credit score of 580
- Few customer complaints to the CFPB
- Good customer reviews online
- An A rating from the BBB
- Licensed in all 50 states
- Happy to work with down payment assistance programs
- Great range of types of mortgages
If you prefer to work with humans rather than computers, Caliber is a shoo-in for your shortlist.
6. Navy Federal Credit Union
Navy Federal Credit Union is a special case. To start with, it’s a credit union, and only members can get loans from it.
Navy Federal membership is restricted to veterans, service members, and others with close affiliations with the military. For that reason, it’s a specialist in VA loans.
For those who are eligible for membership, Navy Federal Credit Union offers:
- The lowest average mortgage rates and fees on our list (though part of that can be chalked up to its focus on VA loans, which have lower interest rates)
- No minimum credit score. Navy Federal says, “A member’s approval isn’t determined by just one number — but by several factors,” meaning it will likely consider lower scores with compensating factors and non-traditional credit histories
- Highest J.D. Power customer satisfaction score on our list
- But also the highest proportion of CFPB complaints
- A+ BBB rating
- No FHA or USDA loans. If you’re not eligible for a VA loan, you may need to look elsewhere
- Good online services, including an app that lets you track your loan application’s status
If you’re eligible for membership and a VA loan, you’ll want Navy Federal on your shortlist.
What’s considered ‘bad credit’ for a mortgage?
We’re talking about bad credit mortgage lenders here. But what exactly is “bad credit”?
Many lenders follow the scoring model from FICO, the company that created the most widely used scoring technologies. It reckons that anything below 580 counts as “poor.”
If your score is in the 580-669 range, it’s actually considered “fair.” If it’s between 670 and 739, it’s “good” — and anything above that is “exceptional.”
- Below 580 — Bad credit
- 580-669 — Fair credit
- 670-739 — Good credit
- Above 740 — Excellent credit
However, it’s important to understand that the definition of “bad credit” can vary, because lenders are free to define their own score ranges how they like.
That means what one lender considers a bad credit score could be perfectly acceptable to another lender.
Just because your score is in the poor range, that doesn’t mean you can’t get approved for a mortgage. But you’ll likely need a sizable down payment and a good story that explains your low score and shows that its cause is in your past.
You’re also likely to have to seek out a sympathetic lender. And that’s where our list of the best bad credit mortgage lenders can come in handy.
How a low credit score affects your mortgage
Even if you’re approved for a loan, a low score means you’re going to pay a higher mortgage rate than someone with a better score. That part is unavoidable.
How much higher? FICO has a calculator that could give you an idea. It actually doesn’t go below 620, but it can give you a feel for the difference a credit score makes.
Here’s how the numbers looked for a $250,000 mortgage (though keep in mind that these will vary as mortgage rates change daily):
|Credit score range||Estimated APR*||Monthly payment||Total interest paid over 30 years|
*Interest rates and payments were sampled in November 2020 and may not reflect current market rates
The monthly differences may look small. But you can see that even paying just $30 more per month, your total interest costs go up by $10,000.
As credit scores go lower, the difference in interest rates and payments grows.
Bad credit mortgage loan options
Of course, you’re not just seeking out the best lenders for people with bad credit. You need a type of mortgage that can accommodate your needs. Here are the main ones:
- FHA loans — FHA loans, backed by the Federal Housing Administration, are the most popular option for borrowers with bad credit. Most borrowers need a minimum credit score of 580 and a 3.5% down payment to qualify. But if you can make a 10% down payment, you may be approved for an FHA mortgage with a credit score of 500-579
- VA loans — VA loans have no formal minimum credit score. But most lenders want at least 620. Some go as low as 580. And a few, such as Navy Federal Credit Union, don’t specify a score and may be sympathetic if yours is low for a good reason. We excluded Veterans United from our list because it wants a 660 credit score or better
- USDA loans — USDA loans typically require a credit score of at least 640 — so they may not be the best for low-credit borrowers. But if your score is high enough, you can use a USDA loan to purchase a home with no down payment
- Non-conforming loans — These loan programs, for which banks and lenders set their own rules, may allow credit scores below 600
Conventional mortgages — loans that conform to standards set by Fannie Mae and Freddie Mac — require a minimum score of 620 and a 3% down payment. That’s why FHA loans are more popular among those with lower credit scores.
Non-conforming loans do not meet the standards set by Fannie Mae and Freddie Mac, meaning they’re not eligible for backing from those agencies.
As a result, non-conforming loans typically have higher interest rates — but they may be available to borrowers with low credit scores.
Pick the type of loan that suits you best. If you’re eligible for a VA loan, it’s likely to be one of those.
Credit score vs. credit report
It’s easy to fixate on your credit score — the single number that represents your reliability as a borrower.
But mortgage lenders don’t just look at this number. They also do a thorough review of your credit report.
Your credit report shows your full history as a borrower.
If you have a low score because of a past event — like a foreclosure — but you’ve been a reliable borrower since then, lenders might be more forgiving.
On your credit report, lenders want to see:
- A history of on-time payments
- Reasonable credit usage (below 30% of your full credit limit is best)
- No new credit lines opened near the time you’re applying for a mortgage
Refinancing with a low credit score
How easy it is to refinance with bad credit will depend on your current loan type, and what you want your refinance to achieve.
If you currently have a government-backed loan, you may be in luck.
FHA, VA, and USDA all offer Streamline Refinance programs that do not require credit score approval. However some lenders check credit anyway, so you’ll have to search for one that doesn’t.
To use a Streamline Refinance, your new loan must be the same type as your current one — for instance, refinancing a VA loan to a VA loan, or FHA to FHA.
Conventional loan refinance
Conventional refinances, like conventional home purchase loans, require a credit score of at least 620.
If your current mortgage is a conventional loan and your credit score has fallen, you may be eligible for an FHA refinance. However, FHA loans require expensive mortgage insurance. This could eat up enough of your savings that refinancing isn’t worth it.
If you want a cash-out refinance, you’re likely to need a higher credit score.
If you currently have a conventional loan but your credit score isn’t high enough for a conventional cash-out refinance, an FHA cash-out refinance might help you access your home equity.
What to do if your credit score is too low for a home loan
The obvious way to get a mortgage with bad credit is to improve your score. You may be surprised how quickly you can make a material difference.
For tips on how to raise your credit score fast, read our Guide to improving your credit score.
There are other ways to qualify for a mortgage with bad credit, too.
- Pay down as much existing debt as you can — If you’re a more attractive borrower in other respects, lenders may be more forgiving about your score. Paying down existing debts, like credit cards and auto loans, improves your debt-to-income ratio. This has a big impact on your home loan eligibility
- Build up your savings — Making a bigger down payment can also help your case, as it reduces your risk to the mortgage lender. Borrowers with a cushion against financial problems are less likely to default. If you’re able to make a 20% down payment, a low credit score might not matter as much
- Qualify on a friend’s or relative’s good credit — If you can get someone with good or great credit to co-sign your mortgage application, your problems may be over. But it’s a huge ask because your loved one could lose a lot of money and creditworthiness if your loan goes bad
We wouldn’t recommend asking for a co-signer in any but the most exceptional circumstances, because this can be a huge risk to the person helping you out. If your loan defaults, they’re on the line for the money.
Instead, we recommend steadily building up your credit score.
Even if you can’t pay off big debts in full, making on-time payments and keeping your credit usage under 30% can go a long way toward improving your score and boosting your mortgage eligibility.
How to find the best mortgage rate with bad credit
Some lenders specialize in “top-tier” borrowers, who have excellent credit scores, bulletproof finances, and large down payments.
But other lenders, including the six on our list, are perfectly comfortable helping those with damaged credit.
So shop around to see who can offer you the best deal. And if one lender turns you down, don’t assume they all will — because that’s not how mortgage lending works.
Each lender’s business priorities can change from day to day. And different lenders offer different deals.
So putting some effort into comparison shopping could find you the loan you want at the best rate you can get.
To find the best bad credit mortgage lenders of 2021, we started by looking the 25 top lenders on a 2019 market share report from federal regulator the Consumer Financial Protection Bureau (CFPB). We also looked at a few major online lenders, as these companies are growing in popularity.
We whittled that down to our six best by filtering out lenders that required credit scores over 580; charged higher mortgage rates than the average among all top lenders; or didn’t offer FHA loans, because many home buyers with poor credit rely on those.
And we took other factors into consideration. Did a lender have a disproportionate number of customer complaints filed with the CFPB? Did it get too many negative customer reviews on online forums? Did it receive a bad rating from the Better Business Bureau? Did it do well in the J.D. Power 2020 U.S. Primary Mortgage Origination Satisfaction Study?
We didn’t automatically exclude lenders based on those last four. But you’ll find the details as you read the following reviews of each of our finalists.