How to Buy a House with Bad Credit

By Allison Martin

Ready to purchase a home but afraid your credit score will hold you back? Some lenders have stringent requirements that make it hard to get approved. Many others have mortgage products that are tailored to potential borrowers with credit challenges.

Keep in mind that even if you are approved, you will pay higher interest rates if you have bad credit. So, it’s best to take a few actions before applying for a home loan to save money over the long haul. Plus, you will strengthen your approval odds. 

Here are a few tips to help you get started

1. Check Your Credit Score

When was the last time you checked your credit score? If it’s been a while, you want to take a peek to see where you stand. You want a score of at least 620 to have the best shot at getting approved. However, some lenders will go as low as 580.

If your score is on the lower end, you can start improving your credit today with a Credit Builder Loan from MoneyLion. This loan does not require a credit check, and over half of borrowers raise their credit by 60 points within 60 days.

Also, know that the score you see may not be what the lender sees. Don’t be alarmed if their figure is higher or lower when you start applying for loans. 

Credit Builder Plus also allows you to check your TransUnion credit score anytime and get weekly score updates. It may be worthwhile to view your credit score from other credit bureaus to see where you stand as scores tend to differ by bureaus. You can access them from for free or myFICO for a small fee. 

2. Dispute Inaccurate or Untimely Information

Now that you know your credit score shifting the focus to your credit report is the next step. The information in this document is used to calculate that 3-digit number. If there is inaccurate or untimely data in your report, your credit score could be suffering. 

Visit to get a copy of your free credit report from the 3 credit bureaus – Experian, Equifax, and TransUnion. Highlight any errors or dated negative information that you see and file disputes. For an easier way to fix errors, try our partner Dovly. Just sign up online, and Dovly will immediately start working with all 3 credit bureaus to remove errors from your credit report and repair your credit.

Refrain from disputing accurate information, even if it’s negative, as this practice is illegal. You also run the risk of future disputes that are valid being deemed as frivolous and thrown out by the credit bureaus. 

While reviewing your credit report, pay attention to negative items that are both accurate and timely. It may be worth a shot to rectify any issues before applying for a mortgage.

3. Research Lenders 

Do your homework to find lenders that may work for you. Peruse their website to view loan products they offer, and reach out by phone to speak with a mortgage loan originator. Explain your situation and inquire about loan products that may be available to you. 

Also, ask if they offer government-backed mortgage products, like FHA, USDA and VA loans. 

These programs are ideal for subprime borrowers, or individuals with bad credit. Here’s a closer look at these loan products: 

FHA loans: backed by the Federal Housing Administration and requires a down payment of 3.5% (of 10% if your credit score is between 500 and 579)

USDA loans: available for rural home purchases and offers 100% financing 

VA loans: backed by the Department of Veteran Affairs and doesn’t require a downpayment or private mortgage insurance 

4. Shop Around for the Best Rates

Applying for many credit accounts in a small time frame can hurt your score. However, there’s an exception to the rule for mortgage loans. According to myFICO, “most credit scores are not affected by multiple inquiries from [mortgage] lenders within a short [period].” So, it’s worthwhile to shop around with different lenders to find the best rate. 

Hire a Mortgage Broker 

Consider bringing a mortgage broker on board to assist with your search. They charge a small fee for their services but can find lenders in their network that can assist with your home loan needs. They are normally able to find lenders that want to work with you rather than applying with multiple lenders yourself. 

5. Gather Your Cash For a Down Payment

Unless you qualify for a down payment grant, you will need to put cash on the table to secure a mortgage. The lender should have communicated the percentage of the purchase price you will have to fork over, but that’s not the only amount you have to worry about.

You must also have additional funds for closing costs and prepaid expenses like taxes as the seller typically does not cover these expenses. Some lenders also require 3 to 6 months of reserves in the amount of the mortgage payment, though this amount could be higher if your credit score is very low. 

Your Mortgage Starts with Your Credit Score

Home buying can be a long and tedious process, and getting your financials in order is key. Knowing your credit score and improving it if necessary if the first step in applying for a mortgage. If you need some help improving your credit score, apply for a Credit Builder Loan to help build your credit fast, which can help your chances of getting approved for a mortgage. 

Once you are in the suitable credit range for your lender, your hard work will finally pay off and you will be able to secure your mortgage loan. Remember to ask any questions you have to your lender, broker or real estate agent throughout the process, that’s what they are there for!

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