Nowadays, the process of buying a home is incredibly stressful. The mortgages and loans can be extremely hard to get especially if you have a fairly poor credit score. Your credit score tells lenders that you are financially responsible and how likely you are to pay back the money you borrow. A high credit score is preferred, whereas a low credit score(also known as bad credit) will essentially disqualify for mortgages lenders and loans.
If you are one of the millions of Americans with a poor credit score, getting a mortgage can be difficult. However, it is certainly not impossible. When it comes to buying a home, conventional mortgages generally require a score of 620 or higher.
However, there are some lenders that offer mortgages for bad credit. Many government-backed loans allow credit scores as low as 580 especially if you have a hefty down payment or low debt-to-income ratio.
Are you also someone who is looking for a mortgage loan with bad credit? Fret not. We have handpicked the best companies and found out the best mortgage lenders with bad credit based on various factors like credit score requirements, debt-to-income ratio limits, and minimum down payment amounts.
Keep reading to find the best mortgage lender that is suitable for you.
Best Mortgage Lenders in 2023 for Poor Credit Score Borrowers
Here are the best mortgage lenders for bad credit in 2023 that can help you apply for and acquire a house loan quickly.
New American Funding
New American Funding offers a wide variety of loan and mortgage products such as government-backed mortgages, ITIN loans, and construction loans. The lender specifically focuses on helping underserved communities overcome barriers to getting home loans. It mainly caters to Hispanic, and Black community members, and military service members to achieve homeownership.
Finding loan options on their website is very easy and you can get a full menu of loan options in one click. The lender offers fixed and adjustable-rate loans and government-backed FHA, USDA, and VA mortgages. Besides that, there are also some rare choices such as interest-only loans, construction loans, and mortgages specifically for self-employed borrowers.
|Offers a wide variety of mortgages and is geared towards helping underserved communities
|Mortgage initiation fees are a little high
|Its home equity line of credit can be used for a second or owner-occupied home.
|Personalized mortgage rates are not available without providing contact information.
|Offers a program to enable buyers to make cash offerings.
|Excellent customer satisfaction, according to Zillow and J.D. Power
Fairway Independent Mortgage
Fairway Independent Mortgage is one of the best mortgage lenders for bad credit for people looking for low down-payment mortgages, renovation loans, or specialized mortgages, particularly for medical professionals.
Fairway offers a wide range of mortgages, including some rare options like ITIN loans for individuals without Social Security numbers and mortgages geared towards medical experts. One of the best aspects of the mortgage for medical professionals is that it has relatively low down-payment requirements and doesn’t count student loans in an applicant’s Debt-to-income ratio.
Fairway’s fixed-rate mortgages also feature several term options including 10,15,20,25, or 30 years depending on the type of loan. The lender also provides adjustable-rate mortgages that have dynamic interest rates that change after the initial fixed-rate periods.
|Offers a wide range of loan products like ITIN loans for borrowers without social security numbers, renovation loans, loans for self-employed borrowers, and government-backed mortgages.
|Mortgage rates for various types of loans aren’t available online.
|Offers excellent customer satisfaction according to Zillow
|According to the latest federal data, initiation fees and mortgage rates are on the high side.
Flagstar Bank is another great mortgage lender for bad credit. The lender excels in various offerings like application options, customizable interest rate tools, and a wide range of mortgages. It offers a unique and wide range of products and services including special financing for underserved borrowers and borrowers who are in the initial stage of a high-income career.
The interest rates provided by Flagstar are relatively low compared to its competitors and borrowers who are looking to renovate their homes can take advantage of its home equity services. If you browse Flagstar’s website, you will find many unique services including-
- Purchase loans for multiple properties.
- Specific mortgages for medical professionals and attorneys.
- Loans with flexible requirements.
- Loans for borrowers without Social Security numbers.
- Construction and renovation loans.
|Multiple loans for constructing and renovating a property.
|Home equity loans are only available in specific locations.
|Home Equity loans and lines of credit
|Flagstar was fined for violating laws regarding properties in flood zones in 2022.
|Offers down payment assistance and loans for underserved borrowers with flexible qualifications in certain communities.
|Relatively low interest rates.
|Borrowers can get a customized rate quote by entering their personal information into the Mortgage Quote Comparison tool
Loan Depot is the best mortgage lender for bad credit for borrowers who are looking for a one-stop shop for buying and selling properties. Besides FHA, VA, and Jumbo loans, the lender offers both fixed-rate and conventional-rate purchase mortgages. According to federal data, government mortgages accounted for more than a quarter of their originations and conventional loans made up the majority of its originations in 2022.
Loan Depot is a boon for borrowers who are looking for an entirely online experience as their website allows you to apply for loans and mortgages online. The lender also offers unparalleled benefits for buying and selling through Mellohome, Loan Depot’s partner. Loan Depot also offers various terms for mortgages including 10, 15, 20, and 30 years mortgages. Customers who are interested in paying off their home loan sooner can opt for the 10 or even 15-year terms.
|Offers a variety of repayment terms
|Sample interest rates are not provided
|Online loan calculator allows borrowers to compare lifetime interest and monthly payments.
|Origination fees are relatively higher than competitors.
|Excellent customer satisfaction
|Loan Depot’s website does not have a live chat feature.
Carrington Mortgage Services
If you’re looking for a government mortgage with bad credit, Carrington is the suitable option for you. It has plenty of options for buyers with low credit scores and non-traditional credit histories. The Carrington Mortgage Services menu offers a wide selection of conventional purchases and refinance loans, along with government-backed loans including VA loans, FHA Loans, and USDA loans. Moreover, FHA and VA Loans are also available for manufactured homes which is an affordable way to own a home.
However, Carrington Mortgage Services was penalized for misleading consumers about mortgage payment relief during the pandemic. The Consumer Protection Financial Bureau took action against Carrington in November 2022 for misleading borrowers who sought temporary payment relief during the pandemic. However, despite that, Carrington still received an impressive customer rating of 4.93 out of 5 on Zillow.
|Offer multiple low down-payment loans.
|Fined $5.25 million for misleading customers about payment relief during the pandemic.
|Offers flexible loan options and accepts a history of bankruptcy, foreclosure, and late payments.
|Doesn’t offer home equity lines of credit.
|Considers borrowers with high debt-to-income ratios and low credit history.
|According to federal data, the lender fee is higher compared to its competitors.
What Type of Mortgages Lenders, Can I Get With a Bad Credit Score?
While there are some lenders that do offer home loans to individuals with bad credit. More often than not, home buyers are required to secure mortgage loans for bad credit from a government agency like the Federal Housing Administration (FHA), the Department of Veteran Affairs(VA), or the U.S. Department of Agriculture(USDA). Loans backed by these government agencies are more flexible and more suited for people looking for mortgages for bad credit.
FHA Loans are commonly issued by private lenders but backed by the Federal Housing Administration. There are specific requirements that an individual must meet to qualify for an FHA Loan. These are as follows-
- If you have a credit score of 580 or more, the minimum down payment is 3.5%.
- If you have a credit score of 500 or lower, the minimum down payment is 10%
Although there are no minimum income requirements, lenders must determine if the borrower has sufficient income to repay the loan.
Similar to FHA Loans, VA Loans are also provided by private lenders and backed by the Department of Veteran Affairs. In VA Loans, there is no minimum credit score requirement but each lender has a cutoff. There is also no requirement for a down payment unless the home appraises for less than you’re paying for it.
However, to qualify for VA Loans, you will need a Certificate of Eligibility(CoE), that has certain requirements to qualify for. These are as follows-
- You’re currently a service member and have completed 90 consecutive days of active duty service.
- You’re a veteran and have served 90 consecutive days during wartime and 181 consecutive days during peacetime.
- You’re a National Guard or Reserve Member and have served 90 days of active service or six years of honourable service.
- You’re a surviving spouse of a service member who died in active service or service-related injuries.
The U.S. Department of Agriculture also offers mortgage loans for bad credit to individuals. The USDA offers Section 502 Direct Loans only to borrowers with limited income who are buying properties in rural areas. The USDA also offers bad credit mortgage loans to borrowers with low incomes. However, these loans are issued by private lenders and the income limit is generally higher.
USDA loans require no down payment and the interest rates are often lower than what you will be charged for a conventional loan. While the USDA itself doesn’t set a minimum credit score, USDA lenders often have their own requirements.
How to Get a Mortgage with a Low or Poor Credit Score?
Mortgage lenders consider four primary factors when reviewing a mortgage or loan application-
- Credit Score
- Debt-to-Income Ratio(The amount of debt you have relative to your income)
- Your Employment History
- Size of Your Down Payment
Also, keep in mind that two or three positive points can trump a negative one. Here’s how you can improve these factors and enhance your chances of getting approved for a bad credit mortgage loan.
Your credit score is the deciding factor in determining what type of home loans you qualify for, the size of the down payment you will have to make, and the interest rates on the loan. While you can qualify for a mortgage or loan with a credit score as low as 500, you will also have to make a down payment of a minimum of 10%. Moreover, you wouldn’t get good interest rates either.
It takes time to improve your credit score but a higher score can make it easier to get a home loan and get you better terms, essentially saving a lot of money in the long run.
In order to calculate your Debt-to-income ratio(DTI), you can divide your total monthly obligations by your monthly pretax income.
Most lenders accept a DTI that is 36% or lower(including your housing costs). If a lender qualifies you with a higher DTI, they will probably charge you a higher interest rate.
You can easily lower your DTI by paying off your existing debts. If you’re getting ready to buy a house, you should avoid taking on additional debt or making major purchases during the home-buying process.
Well, you can’t change your employment history but you can make sure that you have a steady employment status before you start the mortgage process. If you switch jobs or decide to quit during the underwriting process, it can affect how much a lender is willing to offer you in a mortgage.
The amount of the down payment ultimately depends on the type of home loan you are applying for. If you are a service member or a veteran in the military, you might be eligible for a home loan backed by the Department of Veteran Affairs. These loans generally have zero down payment.
USDA loans also don’t have any down payment requirements. However, these loans are specifically designed for lower-income borrowers living in rural areas.
FHA Loans are suitable for borrowers with lower credit scores. If your credit score is at least 580, you will have to make a down payment of 3.5%. However, if your credit score is as low as 500, you will have to put a down payment of at least 10%. Moreover, FHA loans also allow borrowers to use gift money to go towards the down payment.
These are some of the best mortgage lenders for bad credit in the market. We have analysed various factors like debt-to-income ratio, credit score requirements, and minimum down payments while compiling this list. However, it is also important to research the market and do your homework to identify the best mortgage lender suitable for you. One important thing to note is that while you may be approved for a loan with bad credit, you will likely receive a high-interest rate.
Frequently Asked Questions(FAQs)
A 500 credit score is on the lower end of the spectrum and will make it incredibly difficult to get a home loan. However, you can maybe still qualify for a loan backed by the Federal Housing Administration with a minimum down payment of 10%. Very few lenders will accept a 500 credit score and improving your credit score will provide you with more loan options and lower interest rates.
One of the easiest mortgages for bad credit are FHA loans. They are guaranteed by the Federal Housing Administration, meaning the government will cover the mortgage if you default on the loan. If you can put down a payment of 10%, you can get an FHA loan with a credit score as low as 500.
Generally, getting a mortgage or housing loan requires a credit score of at least 680. Borrowers with a lower credit score can struggle to get conventional mortgages. However, they can still qualify for other mortgages that have lower credit requirements.