4 Tips to Get Approved for a Mortgage With Bad Credit

Even with a lower credit score, you have options.

Your credit score is a major cornerstone of your personal finances, and sometimes it feels as if that three-digit number plays a role in just about every money move you want to make. Getting a mortgage loan is no exception, and if your credit has seen better days, you may think you'll never be able to qualify for one.

While it's always a good move to take the time to improve your credit (such as by paying down high-interest debt and going through your credit report to find errors you can have removed) before trying to buy a home, you may not have the time to do so. If your housing situation has deteriorated or you need to move quickly in the homeownership process, keep reading to learn how you might be able to get approved for a mortgage loan, even without a good credit score.

1. Consider an FHA (or other government-backed) loan

Mortgage loans backed by the Federal Housing Administration (FHA) are how many Americans get on the property ladder. FHA loans are easier to qualify for based on having a smaller down payment requirement and a lower required credit score. They're offered by many regular mortgage lenders, with the understanding that the loan is backed by the FHA, meaning that if you default on it, the federal government will repay the lender (you will not get off scot-free in this situation, but the risk of lending to you is mitigated by this guarantee).

If you have a credit score of at least 580, you'll be able to make a down payment of just 3.5% (if your credit score is lower than this but at least 500, you'll need a 10% down payment). Other government-backed loans, such as those offered by the VA or USDA, may also have less stringent credit requirements than conventional mortgages, but requirements vary based on lender.

2. Make a larger down payment

If your credit isn't great but you can afford to make a healthy down payment on a home, you may find it easier to get approved by a lender. That's because the more money you can put down, the less of a risk the lender will be taking by extending you a loan, as you'll have more of your own money to lose if you stop making your mortgage payments. Making a larger down payment will also save you money over the life of the loan, as you may be able to pay less in mortgage insurance (or avoid it altogether, if you can put at least 20% of home's purchase price down).

3. Get a cosigner

If you're unable to get approved for a mortgage loan based on the strength of your credit, you may have more luck if someone with good credit will cosign a loan with you. This person won't appear on the title or have any ownership of the home whatsoever, but they're agreeing to pay the lender back if you can't. It's a big ask, and you may not have anyone in your life willing to do this (it's a huge risk for them). But if you do, you might consider it.

4. Shop around

In getting a mortgage loan, as in all financial dealings, you have options, so it pays to take advantage of them. There's a wide range of mortgage lenders to choose from, from big national banks all the way down to your friendly neighborhood credit union. Call around, have various lenders run your numbers, and see if one of them offers you a better rate than the others, in spite of not having great credit.

If you're ready to buy a home of your very own but are afraid your credit score might keep you from achieving it, fear not. Look into government-backed mortgages, save extra for a down payment, and don't talk to multiple lenders to find the best deal for you.