How to Get a Mortgage With Bad Credit (2026)

A 580 credit score doesn’t lock you out of homeownership. It does change the math meaningfully — your rate is higher, your loan options are narrower, and the wrong move costs $50,000+ over 30 years. Here’s exactly which loan programs accept low scores in 2026, what the rate add-ons actually look like, and the 12-month plan to lift your score before you apply.

What “bad credit” actually means to a mortgage lender

Mortgage lenders use FICO scores 2, 4, and 5 — the classic models that pull from each of the three bureaus. They take your middle of three scores; if you’re applying jointly, they take the lower of the two middle scores between you and your co-borrower. The bands lenders price by:

In May 2026 numbers, that means a 580 borrower is looking at 7.75%–8.50% on an FHA loan vs a 740 borrower at 6.25% on conventional. On a $300,000 loan, that’s about $400/month more, or $145,000 over 30 years.

FHA: the workhorse for low credit

The FHA program is the single most-used mortgage product for borrowers under 660. The official FHA minimum is 500, but in practice:

• 580+: 3.5% down. Most FHA-approved lenders will work with you.
• 500–579: 10% down required. About a third of FHA-approved lenders allow scores this low.
• Under 500: Not eligible.

FHA is more forgiving than just credit score. It allows higher DTI (up to 50%+ with compensating factors), accepts manual underwriting for thin credit files, and permits larger gift funds from family. The trade-off is mortgage insurance for the life of the loan if you put less than 10% down — see our FHA vs conventional comparison for the long-term cost picture.

VA: the best low-credit option if you’re eligible

The VA itself sets no minimum credit score. Lender overlays typically require 580 or 620. A handful of VA-specialty lenders (Veterans United, Freedom Mortgage) will go to 540 with strong residual income.

For a sub-620 borrower who qualifies, VA almost always beats FHA on cost: zero down vs 3.5%, no monthly mortgage insurance vs FHA’s lifetime MIP, and rates that price 0.5%+ below FHA even for the same credit score.

USDA: 640 floor, but the lowest MI of any low-down option

USDA’s GUS automated system effectively requires 640. Manual underwriting can sometimes get a 600+ borrower approved with very strong compensating factors, but it’s rare. If you’re sitting at 620 and the home you want is in an eligible USDA area, spending 6 months getting to 640 is almost always worth it — the program’s 0.35% annual MI is the lowest of any low-down-payment loan.

Conventional with credit under 660

It’s harder, but possible. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs accept down to 620 and allow 3% down for first-time buyers under specific income limits. The catch: PMI at this credit band runs 1.0%–1.5% per year, more than double what a 740 borrower pays.

Worked example. $300,000 loan, 3% down, 620 credit:

• Loan amount: $291,000
• Rate: 7.625%
• Monthly P&I: $2,061
• Monthly PMI (1.25%): $303
• Total monthly: $2,364

At the same loan size with FHA at 580 credit:

• Loan amount: $292,500 (with FHA upfront fee financed)
• Rate: 7.875%
• Monthly P&I: $2,121
• Monthly MIP (0.55%): $134
• Total monthly: $2,255

Roughly the same cost. The conventional loan has the advantage of PMI eventually dropping at 78% LTV — about 8 years in. The FHA loan’s MIP stays for 30 years. Over a long hold, the conventional wins.

Specialty “non-QM” lenders

For borrowers in the 500–580 range, or with recent foreclosures, bankruptcies, or unusual income, non-qualified mortgage lenders (Athas, Angel Oak, Sprout, others) offer products that don’t meet conventional underwriting standards. Typical features:

• Down payments of 15%–25%
• Rates 1.5%–3.5% above prime conventional
• Higher origination fees, often 1.5%–2.5%
• Bank statement income docs (good for self-employed)

These exist for a reason and serve real borrowers. The cost is steep — non-QM borrowers should treat the loan as a 24–36 month bridge, with a clear refinance plan into FHA or conventional once credit is rebuilt.

The 12-month plan to lift your score before applying

If you’re 6–12 months from buying and your score is below 680, the highest-leverage thing you can do is repair credit. A 50-point lift can save $200–$400/month for the life of the loan. The actions, ordered by impact:

1. Pay down credit card balances below 30% of limits, ideally below 10%. Utilization is the second-largest FICO factor (30%) and the fastest to move. A revolving balance dropping from 80% to 10% can lift your score 30–60 points within one billing cycle.
2. Bring all delinquent accounts current. A 30-day late drops your score 60–110 points; a 60-day, 90+ points. Get everything reporting current at least 6 months before applying.
3. Don’t close old credit cards. Average age of accounts (15% of your score) drops when you close old lines. Keep them open and use them once a year for a small purchase.
4. Don’t open new credit lines. Hard inquiries cost 5–10 points each, and new accounts shorten your average account age. No car loans, no store cards, no new credit cards within 6 months of the mortgage application.
5. Dispute legitimate errors on your credit report. Pull free reports from all three bureaus at annualcreditreport.com. About 25% of consumer reports have errors. Disputing accurately (with documentation) resolves most within 30 days.
6. Become an authorized user on a strong account. A parent’s credit card with 10+ years of perfect history added you can lift your score 20–40 points in one cycle.
7. Pay down installment debt strategically. An auto loan at 80% paid off helps less than the same dollars applied to credit card balances. Card utilization moves the score; installment balances move it slowly.

The 24-hour rapid rescore

If you’re close to a score break and you’ve made changes that haven’t hit your report yet, your loan officer can request a rapid rescore. Costs $25–$50 per bureau and updates the bureaus within 3–5 business days, vs the normal 30-day cycle. Useful when paying down a card on Wednesday and applying for the loan on Monday.

Don’t pay off old collections without checking first. Paying a 5-year-old collection often resets the date and tanks your score. A “pay for delete” agreement (in writing) before paying is the safe move.

Compensating factors that move the needle

Underwriters can approve borderline files when they have offsetting strengths. From most to least powerful:

• Larger down payment. 10% down on FHA opens 500–579 scores; 20% down on conventional partially offsets a 660 score.
• 3+ months of cash reserves after closing. The lender’s comfort scales directly with your bank balance.
• Stable employment. Same job for 2+ years carries weight for non-traditional credit profiles.
• Low DTI. A 32% DTI gives the underwriter more room than a 48% DTI even at the same credit score.
• Documented rent history. 12 months of on-time rent equal to or greater than the proposed mortgage payment is a powerful overlay especially on FHA manual-underwrite files.

The cost of waiting six months

A common scenario: 615 credit today, ready to buy now, but with clear room to lift to 680 in 6 months. Worth waiting?

Six months of waiting saves $73,000 over the life of the loan — roughly $146 per day waited. The exception is in markets where prices are rising fast: a 5% home price jump on a $300,000 home is $15,000, which can cancel out the rate savings on a year of waiting. Run both numbers for your market before deciding.

What not to do

• Pay a credit-repair company up front. 90% of what they do you can do yourself with a $0 cost in 30 minutes per week. A few legitimate firms exist; almost all charge for form letters.
• Open a new credit card to “build credit” right before applying. Hard inquiry, lower average account age, no upside.
• Co-sign a loan for a relative during the same window. Their late payment becomes your late payment.
• Take a debt-settlement deal. Settled accounts report as “settled for less than full balance” and tank scores for 7 years.

Bottom line

Bad credit isn’t a wall — it’s a tax. The cheapest path is to spend 6–12 months focusing on credit utilization, on-time payments, and disputes, then apply at a higher score and a meaningfully better rate. If you can’t wait, FHA is the primary low-credit option, VA is the best if you’re eligible, and a non-QM bridge with a clear refinance plan can work for the 500–580 range. Whatever the path, run the numbers before signing.

See what you can afford at your real rate

Plug your current credit-band rate and target home price into our affordability calculator to see your true monthly payment with PMI/MIP included. Compare against the same scenario at a 680 score to quantify what credit repair is worth in dollars.

For the deeper FHA vs conventional decision once you’ve settled on a target score, see our FHA vs conventional comparison.