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The home-buying process is notoriously stressful and often confusing, especially if you’re worried that having less than ideal credit will essentially disqualify you from participating. Fortunately, some lenders will still consider applicants with lower credit scores, typically if they’re around the 580 mark.
Select rounded up several such lenders — all of which will consider applicants with credit scores lower than the typical 620 requirement — and evaluated each lender based on the types of loans offered, customer support and the required minimum down payment amount, among other factors (see our methodology below.)
Remember that it’s important to do your homework so you can choose the best mortgage lender to suit your needs, whether you’re a first-time homebuyer or purchasing an investment property. While we’ve included a FAQ section below to help you get acquainted with some aspects of the process, if you have more specific questions, reach out to a representative or an advisor at your desired lender.
Also keep in mind that while you may be approved for a mortgage with a low credit score, you’ll likely receive an interest rate that’s on the higher end of the lender’s rate range.
Select’s picks for the best mortgage lenders for bad credit
Mortgage FAQs
Best for flexible terms
Rocket Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
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Terms
8 – 29 years, including 15-year and 30-year terms
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Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
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Minimum down payment
3.5% if moving forward with an FHA loan
Pros
- Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
- Can get pre-qualified in minutes
- Rocket Mortgage app for easy access to your account
Cons
- Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
- Doesn’t offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
- Doesn’t manage accounts for jumbo loans after closing
Who’s this for? Rocket Mortgage is one of the biggest mortgage lenders in the U.S. and has recently become a household name. While most mortgage lenders tend to look for a minimum credit score of 620, Rocket Mortgage accepts applicants with credit scores as low as 580.
The lender even has a free program called Fresh Start that’s aimed at helping potential applicants boost their credit score before applying. Keep in mind that if you apply for a mortgage with a lower credit score, you may be subject to interest rates on the higher end of the lender’s APR range.
Rocket Mortgage offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing option for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn’t offer construction loans (if you want to build a brand new custom home) or a home equity line of credit (also called a HELOC), but if you’re only planning to purchase a single-family home, a second home, or a condo that’s already on the market, this shouldn’t be a major drawback.
Best for a VA loan
Who’s this for? Navy Federal Credit Union provides the most benefits to current or retired members of the Armed Forces who have signed up for a Navy Federal Credit Union membership (immediate family members are also eligible). Homebuyers can use the RealtyPlus program to buy a home and receive up to $9,000 in cash back. Private mortgage insurance, or PMI, is also not a requirement for a low down payment on a mortgage through this particular vendor.
Navy Federal Credit Union also offers VA loans with the option to pay 0% down and contribute up to 4% of the home’s value toward closing costs. Another option, the Military Choice mortgage, has similar guidelines to the VA loan, such as no PMI and a 0% minimum down payment, but allows sellers to contribute up to 6% of the home’s value toward closing costs.
Best for no PMI
CitiMortgage®
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
Pros
- Citi’s HomeRun Mortgage program allows for a downpayment as low as 3%
- Citi’s Lender Assistance program gives eligible homebuyers a credit of up to $5,000 to use toward closing costs
- Ability to choose between fixed-rate and adjustable-rate mortgages
- New and existing Citi bank customers can qualify for closing cost discounts based on their account balance
- HomeRun mortgage program allows for a downpayment of less than 20% without PMI
- Provides homeownership education and counseling
Cons
- No options for a 0% downpayment
- Existing customers need high account balances to receive some of the highest interest rate discounts
Who’s this for? Those who apply for a mortgage through Citi’s HomeRun program can make down payments as low as 3% without having to make monthly PMI payments, typically a required monthly charge with other mortgage plans if you make a down payment of 20% or less, and one that can easily eat into your monthly budget. If you’ve already purchased your home, this program can also be used to refinance your mortgage.
HomeRun mortgages allow you to lock in a fixed rate on your loan so you won’t have to worry about potentially being charged even more interest down the line. This mortgage option is also ideal for those who need to borrow up to $647,200 — or up to $970,800 if you reside in Hawaii or Alaska.
Aside from the HomeRun program, Citi offers various discounts for anyone interested in their other mortgage loans.
Mortgage FAQs
1. What is pre-approval and how does it work?
Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. You’ll likely have to provide bank statements, pay stubs, tax forms and employment verification, among other requirements, and once pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and start making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.
2. How do mortgages work?
A mortgage is a type of loan you can use to purchase a home. It’s also an agreement between you and the lender that essentially says you can purchase a home without paying for it in full and upfront — you’ll just need to put some of the money down — usually between 3% and 20% of the home price — and pay smaller, fixed monthly payments over a certain number of years, plus interest.
For example, you probably wouldn’t want to fork over $400,000 for a home upfront, though you might be more willing to pay $30,000 upfront. Having a mortgage would allow you to make that $30,000 payment while a lender gives you a loan for the remaining $370,000. You would then agree to repay that amount — plus interest — to the lender over the course of 15 or 30 years depending on your terms.
Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance (PMI) payments in addition to your monthly mortgage payments, however you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.
3. What is a conventional loan?
A conventional loan is a loan that’s funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5%.
4. What is an FHA loan?
A Federal Housing Administration loan, or FHA loan, typically allows you to purchase a home with looser requirements — for example, you may get approved with a lower credit score or be able to get away with having a higher debt-to-income ratio. You’ll typically only need to make a 3.5% down payment as well.
5. What is a USDA loan?
A USDA loan is offered through the United States Department of Agriculture and is aimed at individuals who want to purchase a home in a rural area. Best of all, USDA loans require a minimum down payment of 0% — in other words, you can use it to buy a rural home without having to make a down payment.
6. What is a VA loan?
VA mortgage loans are provided through the U.S. Department of Veterans Affairs, meant for service members, veterans and their spouses and require a 0% down payment with no mortgage insurance.
7. What is a jumbo loan?
A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Note that these types of loans are not sponsored by Fannie Mae or Freddie Mac and typically have stricter credit score and debt-to-income ratio requirements.
8. How is my mortgage rate decided?
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, they do tend to move in reaction to actions taken by the Federal Reserve on its interest rates.
While market forces may…
Read More:Best Mortgage Lenders of 2022 if You Have a Bad Credit Score
2022-05-19 02:11:32
