About one in four Americans has a FICO score below 620, a threshold lenders use to separate standard mortgage approval from riskier territory. That number matters because conventional underwriting is binary in practice: cross the line and your options widen; fall short and you face higher costs, more documentation, or outright denial.
The point of this article is straightforward. You will get a clear view of which loans are available if your credit is damaged, what those loans actually cost, and which steps produce the biggest, fastest improvements in approval odds. By the end you should know whether buying now makes sense or whether a short delay and repair plan will save tens of thousands of dollars.
Lenders do not lend to numbers alone, but numbers do most of the talking. The three-digit credit score is shorthand for decades of payment behavior encoded in a FICO or VantageScore model. Conventional mortgage lenders — those issuing loans sold to Fannie Mae or Freddie Mac — typically prefer scores at or above 620. Below that, many lenders shift to manual underwriting, where a borrower must explain derogatory marks and show compensating factors such as a large down payment or significant cash reserves.
What really determines a loan decision is a bundle of things: credit score, debt-to-income ratio, down payment, employment history, and the loan program itself. Two applicants with identical 600 scores can get very different responses if one has steady income, a 20 percent down payment, and no recent bankruptcies, while the other has sparse employment history and high revolving balances.
Credit score bands matter. Scores above 680 open the cheapest conventional pricing. Scores between roughly 620 and 679 increase rates by a modest but meaningful amount. Scores below 620 push you toward government-insured programs or nonbank lenders who charge substantially more. Knowing where you sit helps set expectations for rate sheets, required cash, and the paperwork you will face.
If your credit score is below 620, a few mortgage programs remain within reach. The Federal Housing Administration program is the most familiar. FHA loans accept borrowers with credit scores of 580 and above with a 3.5 percent down payment; applicants with scores between 500 and 579 can qualify with a 10 percent down payment. The FHA program is not free money; it requires mortgage insurance premiums that can add substantially to your monthly payment for many years.
FHA guidelines allow scores of 580 or higher with a 3.5 percent down payment, and 500 to 579 with a 10 percent down payment
Other government-backed options include the Department of Veterans Affairs loan for eligible service members, which often ignores small credit blemishes and focuses on residual income and service eligibility, and USDA loans for certain rural addresses that can allow low or zero down payments to qualifying borrowers. Both programs come with specific eligibility rules that can offset mediocre credit if other factors are strong.
Nonconventional lenders also exist: portfolio lenders keep loans on their books and can set more flexible underwriting. Community banks and credit unions frequently make exceptions if you have a good relationship or if an underwriter sees a path to repayment. Those loans can be priced higher and may come with stricter terms, but they expand access.
Expect to pay for forgiveness. Interest rates for borrowers with low scores can be a full percentage point or more above the rate offered to a borrower with a 760 score. Over a 30-year mortgage, a single percentage point increase on a $300,000 loan raises the monthly payment by roughly $140 and the total interest paid by more than $50,000. Closing costs and required mortgage insurance further widen the gap.
Mortgage insurance is the clearest example. With an FHA loan you pay an upfront mortgage insurance premium typically equal to 1.75 percent of the loan, plus an ongoing annual premium that is tacked onto monthly payments. For conventional loans with less than 20 percent down, private mortgage insurance is usually required but can be canceled once you reach 20 percent equity. FHA mortgage insurance, however, can last the life of the loan unless you refinance into a conventional mortgage later.
Fees and tradeoffs are real. A lower-credit borrower often faces a higher rate, a higher down payment requirement, and mandatory mortgage insurance that may not drop away. That combination can make homeownership unaffordable despite being technically eligible.
Two quick profiles illustrate the arithmetic. Profile A: a single borrower with a 640 credit score, $75,000 annual income, and 5 percent to put down on a $300,000 home. Profile B: the same borrower with a 760 score and the same down payment. With current mid-market rates, Profile A might be quoted a 30-year fixed rate at 6.25 percent plus PMI, while Profile B could see 5.25 percent with no PMI once 20 percent equity exists.
On a $285,000 loan (after a 5 percent down payment), that one-point spread increases monthly payment before taxes and insurance from about $1,571 to about $1,761. Over the first five years, the lower-rate borrower pays roughly $10,800 less in interest. Layer on mortgage insurance and higher upfront premiums, and the total cost differential balloons.
That arithmetic drives one of the clearest practical rules: if you can postpone buying for a year and use that time to repair credit, increase the down payment, or save emergency reserves, you can often reduce lifetime housing costs dramatically.
Not all credit repair requires years. Three targeted actions produce outsized effects within months. First, pay down high-interest revolving balances. Credit utilization — the percentage of available credit you are using — is a major score driver. Dropping utilization from 80 percent to 30 percent can lift a score by 30 to 50 points, depending on the rest of the file.
Second, correct reporting errors. The Consumer Financial Protection Bureau has a clear process for disputing inaccurate items on your credit reports. A single misreported late payment or an old collection that should have fallen off can be removed within 30 to 60 days if the creditor or bureau cannot verify it.
Third, add positive payment history quickly. If a borrower has limited credit or recent derogatory marks but can demonstrate consistent on-time payments to utilities, rent, or a secured credit card, some lenders will count those as compensating factors. A secured card used sparingly and paid in full each month can re-establish payment rhythm at low risk.
Timing matters. Mortgage approvals hinge on what shows up on the credit report the day the lender pulls it. Large purchases, new loan inquiries, or a fresh missed payment during underwriting can derail approval. If you are planning to apply, avoid opening new accounts or making big discretionary buys until after closing.
Buying with bad credit is not always the best decision. If the local market is overpriced or rates are high, renting while repairing credit could be fiscally superior. But some situations justify moving forward: a below-market price you cannot reasonably expect to persist, a job relocation that forces rapid purchase, or access to family help for a larger down payment that offsets higher interest.
Shared-equity arrangements, lease-purchase agreements, and co-borrowing with a stronger-credit partner are other paths. They carry legal and financial complexity and should be entered with clear contracts and, ideally, independent counsel. Still, they enable purchases that would otherwise be blocked by score thresholds.
Remember that being approved does not mean a home is affordable. Lenders evaluate ability to repay, but only you can judge whether the monthly payment, taxes, insurance, and maintenance fit your life. A mortgage should not stretch your finances to the breaking point simply because a lender says yes.
Approach the application with documentation and strategy. Bring two years of employment history when possible, recent pay stubs, bank statements showing reserves, tax returns if self-employed, and explanations for derogatory items prepared in writing. A clear, honest narrative about past credit problems — a job loss, medical bills, divorce — paired with evidence of recovery carries weight with manual underwriters.
Get prequalified with multiple lenders to compare pricing and requirements. A community credit union might approve at better terms than an internet lender, or an FHA lender might offer a smoother path than a conventional shop. Ask each lender what they would need to close, and compare total cost estimates, not just the headline interest rate.
Shop the whole picture: interest rate, mortgage insurance structure, upfront fees, and prepayment penalties. The cheapest rate can be attached to the most expensive fees, so total cash needed to close and projected five-year cost are the best lenses for comparison.
Finally, be wary of quick-fix offers. Companies promising to erase negatives or to get you a mortgage regardless of credit for an upfront fee often fall into scam territory. Use accredited lenders and rely on transparent, written loan estimates.
Buying with bad credit is possible, but costly and conditional. The choices you make before applying — how much you save, whether you settle small disputes on your report, the program you choose — will change both your monthly payment and your financial flexibility for years.
Your best next move is a practical one: quantify the difference. Pull your three credit reports, calculate what a one- or two-percentage-point rate difference would cost on the loan you expect to need, and compare that to the likely gain from postponing purchase by six to twelve months while taking targeted repair actions. That arithmetic often gives a clearer answer than hope.
Homeownership should be an asset, not a persistent strain. If your credit is damaged, there are legitimate doors open to you. Walk through the right one carefully, with your eyes on both the monthly payment and the decade-long balance sheet.
