Best Mortgage Lenders for Bad Credit for February 2023

Many lenders have strict qualifying requirements for mortgage loans, which can make it challenging for borrowers with bad credit to obtain a mortgage. However, if you're a would-be homebuyer looking for the best mortgage lenders for bad credit, there are options out there. A lot of home loans for bad credit are backed by government agencies including the Federal Housing Administration (FHA), the Veteran's Administration (VA), or the U.S. Department of Agriculture (USDA).

Read on to see our shortlist of picks for mortgage companies for bad credit and learn more about getting a mortgage with a low credit score.

While some lenders make conventional loans to home buyers with bad credit, you will often secure more affordable financing if you get a poor credit mortgage insured by a government agency. These mortgages not only have relaxed credit requirements but also require lower down payments than most conventional mortgages do.

There are three primary options for government-backed loans that could be available to borrowers looking for bad credit mortgage loans.

FHA loans

FHA loans are issued by private lenders but backed by the Federal Housing Administration. You can qualify for one with a credit score of 580 and a down payment of 3.5% or with a score as low as 500 and a 10% down payment (some lenders require a higher minimum credit score). There are no minimum income requirements, although lenders must determine if the would-be homeowner has sufficient income to repay the loan.

Compare lenders: Best FHA Lenders

Compare rates: Today's FHA Mortgage Rates

VA loans

VA loans are also issued by private lenders, but this time the Department of Veterans Affairs guarantees the loan rather than the FHA. There is no minimum credit score requirement imposed by the VA, but each lender has a cutoff. There's also no down payment required unless the home appraises for less than you're paying for it. You do need to be a service member or have a record of military service, although surviving spouses of servicemen and women are also eligible.

Compare lenders: Best VA Loan Lenders

Compare rates: Today's VA Loan Rates

USDA loans

The U.S. Department of Agriculture offers two programs for would-be home buyers. Section 502 Direct Loans are made by the USDA directly and are open only to borrowers with limited incomes who are buying properties in rural areas. The USDA also guarantees loans to borrowers with low incomes, although the income limits are higher for these loans made by private lenders. No down payment is required for USDA loans, interest rates are often below what you'd be charged on a conventional loan, and you can qualify even with imperfect credit.

Compare lenders: Best USDA Mortgage Lenders

1. Aim to get your score in the best shape possible. Reducing debt, correcting errors on your credit record, and asking creditors to remove black marks from your credit history could help you qualify for a better rate.
2. Research loan options for bad credit borrowers. Many lenders cater to borrowers with low credit scores. Government-backed loans including FHA, VA, and USDA loans are also available even with low credit scores. Look into each option.
3. Save up a down payment. A larger down payment reduces the risk of lending to you. You're borrowing less and have more of a stake in the house.
4. Shop around and compare loan options. Get quotes from multiple lenders to get the most affordable rate. It's even more important to shop around for mortgage rates when your credit score is low, as some lenders offer better rates for bad credit borrowers than others.

First-time home buyers with bad credit may be able to purchase a home. Some lenders offer special first-time buyer programs that have relaxed credit score requirements to qualify. There are even some options for how to buy a house with no credit.

While there are conventional loans for borrowers with imperfect credit, many would-be homeowners do better with government-backed loans. Government agencies guarantee loans in part to help people become first-time homeowners. These include FHA loans, VA loans, and USDA loans.

Each of these government-guaranteed loans comes with relaxed requirements for the credit score needed for a mortgage. FHA loans require a credit score of only 500 with a 10% down payment, and other loans have no credit score requirement at all.

While you can get a mortgage with bad credit, your mortgage will be less expensive and you'll have a broader choice of lenders if you raise your score. There are seven simple steps you can take to help you rebuild credit.

1. Pay all your bills on time. Payment history is the most important component of your score. Almost any creditor, including landlords and storage unit owners, can report you if you're late on payments.
2. Make sure your positive payment records are included in your credit history. If you've paid your rent, utilities, or other bills on time, try to get them included. Services such as Experian Boost can help you get some of these accounts reported for free that otherwise wouldn't be.
3. Keep your credit utilization ratio low. Maxed-out cards can be very damaging to your credit score. Try to keep your credit utilization ratio below 30% of your credit line to avoid hurting your score.
4. Avoid closing old credit card accounts. The length of your credit history is an important factor in determining your credit score. The older your accounts, the higher your score.
5. Aim to have a mix of different kinds of credit. Lenders like to see you've used different kinds of debt, including credit cards and other revolving debt, as well as car loans and other installment loans.
6. Try to get old black marks removed from your credit history. Sometimes creditors are willing to remove a late payment from your credit report if you've mostly been a good customer. You can write a goodwill letter or call your creditor to ask.
7. Be smart about rate shopping. While it's a smart idea to shop for a mortgage or other loan, you want to avoid getting too many hard inquiries on your credit report. Look for lenders that pre-approve you and provide details of loan terms with a soft credit check only.

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