How to Buy a House With Bad Credit in 2026

How to Buy a House With Bad Credit in 2026 (Step-by-Step)

You've been told you need a 700 or 750 credit score to buy a house. That's wrong. People buy homes every day with scores in the 500s and 600s. It costs more, and the path is different, but it absolutely works.

Here's exactly how to do it.

What Counts as "Bad Credit" for a Mortgage?

Lenders see credit scores on a spectrum:

• 740+: Excellent. Best rates available
• 700-739: Good. Slightly higher rates
• 660-699: Fair. Still plenty of options
• 620-659: Below average. Conventional loans still possible
• 580-619: FHA territory. Limited conventional options
• 500-579: Challenging but not impossible

The mortgage industry considers anything below 620 to be "subprime," but that label sounds worse than the reality. FHA loans were literally designed for borrowers in this range.

Step 1: Know Your Actual Score

Check your FICO score from all three bureaus: Equifax, Experian, and TransUnion. Mortgage lenders use the middle score. Free options include AnnualCreditReport.com for your full reports and many bank apps that show your FICO score.

Don't rely on Credit Karma or similar services for your mortgage score. They use VantageScore, which can differ significantly from the FICO models that mortgage lenders actually use.

Step 2: Dispute Errors on Your Report

About 25% of credit reports contain errors that could affect your score. Look for:

• Accounts that aren't yours
• Late payments that were actually on time
• Debts listed as open that were paid off
• Duplicate collections
• Incorrect balances

Dispute errors directly with each credit bureau online. They have 30 days to investigate. A single removed collection or corrected late payment can boost your score 20 to 50 points.

Step 3: Choose the Right Loan Program

Your credit score determines which programs are available:

FHA Loans (580+ credit score)

This is the go-to for buyers with imperfect credit. You need 3.5% down and a 580 score. Some lenders go down to 500 with 10% down. FHA loans are more forgiving of past credit problems, including bankruptcies (2 years after discharge) and foreclosures (3 years).

The trade-off: you'll pay mortgage insurance premiums (MIP) for the life of the loan, which adds roughly 0.85% of your loan balance per year to your payment.

VA Loans (no minimum score, but most lenders want 580+)

If you're a veteran or active-duty military, VA loans have no official minimum credit score and no down payment requirement. Individual lenders set their own minimums, usually around 580 to 620.

USDA Loans (usually 640+)

For rural and suburban properties, USDA loans offer zero down payment. Most lenders want a 640, but some will work with lower scores through manual underwriting.

Conventional Loans (620+)

Possible at 620, but you'll pay higher private mortgage insurance (PMI) rates. At 620, PMI can add $150 to $250 per month on a $300,000 loan compared to what someone with a 760 score would pay.

Step 4: Find the Right Lender

Not all lenders are equal when it comes to lower credit scores. Big banks tend to have stricter requirements. Look for:

• FHA-approved lenders who specialize in credit-challenged borrowers
• Credit unions, which often have more flexible underwriting
• Community banks that do manual underwriting (a human reviews your file instead of an algorithm)
• Mortgage brokers who can shop multiple lenders on your behalf

Get quotes from at least three lenders. The difference in rates between lenders can be significant, especially at lower credit scores.

Step 5: Prepare a Strong Application

When your credit score is low, everything else needs to be solid:

• Stable employment: At least 2 years at the same job or in the same field
• Low debt-to-income ratio: Pay down credit cards and car loans before applying
• Larger down payment: Putting down more than the minimum shows the lender you're serious and reduces their risk
• Cash reserves: Having 2 to 3 months of mortgage payments saved after closing helps your application
• Letter of explanation: If your credit problems have a clear cause (medical emergency, divorce, job loss), write a brief explanation. Lenders appreciate context

Step 6: Consider a Co-signer or Co-borrower

If your score is in the 500s, adding a co-borrower with better credit can strengthen your application significantly. This person goes on the loan with you and is equally responsible for payments.

A co-signer is similar but doesn't go on the title. This option varies by loan program and lender.

Be cautious with this approach. If you miss payments, it damages their credit too. Only do this with someone who fully understands the commitment.

What Bad Credit Actually Costs You

Let's be honest about the financial impact. On a $300,000 30-year mortgage:

• At 6.0% (excellent credit): $1,799/month principal and interest
• At 7.0% (fair credit): $1,996/month principal and interest
• At 7.5% (poor credit): $2,098/month principal and interest

That's a $200 to $300 per month difference. Over 30 years, that adds up to $72,000 to $108,000 in extra interest.

But here's the thing: you can refinance later. Buy now with the credit you have, make on-time payments for 12 to 24 months, watch your score climb, and refinance into a better rate. You don't have to keep the first mortgage forever.

The Quick Credit Boost Playbook

If you have 3 to 6 months before you want to buy, these moves can add 30 to 80 points:

• Pay credit card balances below 10% of their limits
• Become an authorized user on a family member's old, low-balance card
• Dispute and remove any errors from your reports
• Don't close any accounts or open new ones
• Set every bill to autopay so nothing is late

The Bottom Line

Bad credit doesn't disqualify you from homeownership. It changes the path, not the destination. Millions of Americans buy homes every year with scores under 680. The key is choosing the right loan program, finding the right lender, and strengthening every other part of your application.

Not sure where you stand? SOMA can assess your situation in minutes and show you which loan programs match your credit profile, no judgment, no hard credit pull.