If you’ve got less-than-perfect credit and are looking to purchase a home or refinance your mortgage, there are low credit score mortgage lenders out there with options for you. Bankrate has made it easier to find lenders that provide home loans for bad credit, based on criteria such as lowest minimum credit score requirement, widest array of loan programs for low-credit borrowers and down payment assistance. Here is our guide to the best mortgage lenders for low credit score borrowers in 2021.
Best mortgage lenders for low or bad credit borrowers
New American Funding
With an A+ rating from the Better Business Bureau and five out of five stars on Bankrate, New American Funding is highly acclaimed by borrowers as one of the best mortgage lenders for those with less-than-desirable credit. Underscoring that reputation is New American Funding’s array of loan products, which includes:
- Conventional loans (620 minimum credit score)
- FHA loans (As low as 500 minimum credit score)
- VA loans (No minimum credit score requirement)
- USDA loans (As low as 580 minimum credit score)
- “I CAN” mortgages with flexible loan terms (As low as 620 minimum credit score)
- Reverse mortgages (No minimum credit score requirement)
Notably, New American Funding can help qualify no-credit borrowers for certain types of loans by considering other information, such as history of payments, in lieu of a credit score.
New American Funding is available in every state except for Hawaii and New York, and branches can be found in most. One downside is the lack of information available to the public about fees the lender might charge for a loan. Be sure to ask about any lender fees as you consider your loan options.
Carrington Mortgage Services
Ideal for those with low or bad credit, Carrington Mortgage Services provides certain types of financing designed for borrowers with credit scores as low as 500, including:
- Adjustable-rate mortgages (ARMs)
- FHA loans
- VA loans
- USDA loans
Special loan programs are also available, including “Flexible Advantage,” which allows for a credit score as low as 550 and flexibility if you’ve recently undergone a bankruptcy, foreclosure or have a history of late payments.
Carrington Mortgage Services provides conventional loans as well, but with a higher credit score requirement. The lender is available in every state except for Massachusetts and North Dakota, but only has a handful of brick-and-mortar locations in six states. Another drawback: The lender doesn’t offer online preapproval to borrowers — you’ll need to call in order to initiate a preapproval and an application.
Goodmortgage is a full-service online mortgage lender affiliated with First Guaranty Mortgage Corporation. In addition to conventional and government loans, the lender offers Fannie Mae HomeReady and Freddie Mac Home Possible loans, both of which allow for a co-borrower in order to help lower-credit borrowers qualify.
Goodmortgage has several perks for all borrowers, including fast, no-charge rate quotes and relatively speedy closings. The lender is available in most states (not Hawaii and New York) and there are branch locations throughout.
In the disadvantages column, Goodmortgage doesn’t make its lender fees public, and doesn’t provide immediate online preapproval, so you’ll have to speak with a loan officer to compare an offer from this lender to others.
Angel Oak Home Loans
Angel Oak Home Loans is a full-service direct and retail mortgage lender offering a mix of conventional loans and non-qualified (non-QM) loans. Its products for low- or bad-credit borrowers include:
- FHA loans
- VA loans
- Asset Qualifier loans for borrowers with assets (such as bank accounts or stocks) instead of employment or income qualifiers
- Portfolio Select loans for borrowers who’ve undergone bankruptcy or foreclosure (or a deed-in-lieu of foreclosure or short sale)
- Non-QM jumbo loans
Beyond these solutions, Angel Oak Home Loans also offers USDA loans and mortgages for investors, as well as mortgages for self-employed borrowers (bank statement loans) who might not qualify for a loan the traditional way.
Angel Oak Home Loans is licensed in 29 states, concentrated primarily in the South and some parts of the Midwest and West. The lender doesn’t operate in the Northeast at this time. In addition, there’s limited information available to the public about lender fees or rates, but you can fill out a form to obtain a rate quote online. Be sure to ask for details about fees when you apply.
Known for specializing in VA loans, Freedom Mortgage is a national mortgage lender with approximately 100 branch locations and a robust online presence. It boasts several types of mortgages, including products for low-credit borrowers, such as:
- FHA loans (540 minimum credit score)
- VA loans (As low as 580 minimum credit score for VA IRRRL)
- USDA loans
Freedom Mortgage also offers conventional loans and jumbo loans, although higher credit scores are needed to qualify. If you’re a current Freedom Mortgage customer, you have access to benefits such as rate-match and closing guarantees, and you can view current interest rates easily online.
However, you won’t find information about lender fees or other loan costs as readily available, and the application process is limited to a phone call or in-person visit to a branch.
Can I get approved for a mortgage with bad credit?
It’s possible to qualify for a mortgage even if you have bad, low or poor credit. In fact, the U.S. Department of Housing and Urban Development (HUD) reports that the share of mortgages made to borrowers with a credit score of less than 620 has steadily grown in recent years.
You can also improve your chances of getting approved for a mortgage if you apply with a co-borrower or co-signer who has good credit. Note that a co-borrower has ownership of the property, but a co-signer doesn’t, so the latter might be the better option if you’re just looking to give your credit profile a boost.
What type of mortgage can I qualify for with bad credit?
The types of mortgages worth considering if you have poor credit include:
- FHA loans
- VA loans
- USDA loans
- Non-qualified mortgages (non-QM)
Be wary of mortgage products that tout “guaranteed approval” without a credit check, or other offers with too-good-to-be-true claims. These are most likely bad actors, and going this route can potentially do more harm to your credit.
What is the lowest credit score needed for a mortgage?
The lowest credit score you need to qualify for a mortgage depends on the loan program and the lender. Conventional loans usually have a minimum credit score of 620, but borrowers with higher credit scores tend to nab better rates. FHA, VA and USDA loans have lower minimum credit score requirements than conventional loans, and might make more sense for you if your credit needs improvement.
How to improve your credit score
In general, the lower your credit score, the more likely you’ll get a higher mortgage interest rate and pay steeper financing costs. That’s why it’s best to work toward a higher credit score before applying for a mortgage, even if you’ve had some serious dings in the past. Here are some tips:
- Review your three credit reports from the credit reporting bureaus for no charge at AnnualCreditReport.com. Contact the agency as soon as possible if you spot any errors or inaccuracies so you can resolve them quickly.
- Pay all of your bills on time and in full, if possible.
- While it can be tempting to cut off access completely, close credit cards with caution. Your credit score can drop if you close an account. You’re better off simply not using the card, or using it sparingly and paying it back promptly.
- If your credit report is thin, ask a family member or friend to add you as an authorized user to their existing credit card. This can help build your credit history.
- Don’t apply for new credit too frequently, especially before applying for a mortgage and during the loan underwriting process.
- Enroll in the Experian Boost or UltraFICO program. These free programs take into account your bill payment history and your banking data, respectively, which can help improve your credit score.
- If you need more help, consider consulting with a credit counseling organization. Just be wary of debt settlers, who often give bad advice but pose as reputable credit counselors.