Let’s be honest about something. You’ve probably Googled your credit score, seen a number that made your stomach drop, and thought: there’s no way I’m buying a house anytime soon.
Here’s what most people don’t know: you can get a mortgage in 2026 with a credit score as low as 500. It’s not easy, and it’s not cheap — but it is possible. And if you understand exactly how the process works, you can put yourself in the best position to actually get approved.
This guide walks you through exactly what to do, step by step.
What Credit Score Do You Actually Need?
This is where most people get confused, because there isn’t one answer — it depends on the type of loan.
| Loan Type | Minimum Credit Score | Down Payment |
|---|---|---|
| FHA Loan | 500 | 10% (500–579) or 3.5% (580+) |
| VA Loan | 580–620 (lender overlay) | 0% |
| USDA Loan | 640 | 0% |
| Conventional | 620 | 3–5% |
| Jumbo Loan | 700–720+ | 10–20% |
According to Quicken Loans, FHA loans allow scores as low as 500, but you’ll need a 10% down payment at that level. Get to 580, and that drops to just 3.5% down — which on a $300,000 home is only $10,500.
One critical thing to understand: these are program minimums, not lender minimums. As UQUAL explains, individual lenders often set “overlay” requirements 20 to 40 points above the official program floor. So even if FHA technically allows 500, many lenders won’t go below 580 or even 620. This is why shopping multiple lenders matters more with bad credit than it does with good credit.
Step 1: Know Exactly Where You Stand
Before you do anything else, pull your credit reports from all three bureaus — Equifax, Experian, and TransUnion. You can do this free at AnnualCreditReport.com.
Look specifically for:
- Errors — According to the FTC, roughly one in five Americans has an error on their credit report. A single error can drop your score 50–100 points. If you find one, dispute it immediately — errors must be investigated within 30 days under the Fair Credit Reporting Act.
- Collections accounts — These hurt your score significantly. If you’re working on improving your score before applying, check out our guide on how to remove collections from your credit report for the four legal methods that actually work.
- Late payments — A single 30-day late payment can drop your score by 60–100 points. See how long late payments stay on your credit report and what you can do about them.
Step 2: Choose the Right Loan Program
With bad credit, your realistic options in 2026 are:
FHA Loans — Your Most Likely Path
FHA loans are specifically designed for borrowers with imperfect credit. Freedom Mortgage confirms they accept scores as low as 550 for purchase loans.
The tradeoff: you’ll pay mortgage insurance premiums (MIP). That’s an upfront fee of 1.75% of the loan amount (financed into the loan) plus an annual fee of 0.55% paid monthly. On a $280,000 loan, that’s about $4,900 upfront and $130/month ongoing.
For most bad-credit borrowers, FHA is still the best deal available. According to Herring Bank’s mortgage analysis, FHA actually saves money compared to conventional loans for borrowers in the 580–660 score range, because conventional loans hit lower credit scores with extra fees called Loan Level Price Adjustments (LLPAs).
VA Loans — If You’ve Served
If you’re a veteran or active-duty service member, a VA loan is the best option available regardless of credit. No down payment, no monthly mortgage insurance, and competitive rates even with lower scores. The VA itself doesn’t set a minimum credit score, though most lenders require 580–620.
USDA Loans — If You’re Buying Outside a Major City
USDA loans offer zero down payment for properties in eligible rural and suburban areas. More areas qualify than most people think — it’s not just farms. The automated system typically requires a 640 score, but manual underwriting is possible below that.
Conventional Loans — Harder But Not Impossible
Conventional loans generally require 620 minimum, and your rate will be significantly higher with a score below 700 due to those LLPAs. If your score is in the 620–660 range, run the numbers on FHA vs. conventional carefully — FHA often wins at this level.
Step 3: Get Your DTI Under Control
Here’s something most people don’t know: your debt-to-income ratio (DTI) can matter more than your credit score.
As AmeriSave’s mortgage specialists put it: “I’ve approved borrowers with 590 credit scores and 45% DTI, but I’ve never approved anyone with 680 credit and 55% DTI.”
DTI is calculated simply: add up all your monthly debt payments (future mortgage included), divide by your gross monthly income.
- FHA standard maximum: 43% DTI
- FHA with compensating factors: up to 56.9%
- Conventional: 45% (rarely above this for sub-680 scores)
To lower your DTI before applying: pay down credit card balances, avoid taking on any new debt, and don’t open new credit accounts in the 6 months before your application.
Step 4: Save for a Stronger Down Payment
With bad credit, a larger down payment does two things:
- It gets you across the minimum threshold (10% down opens FHA at 500 score vs. 3.5% down which needs 580)
- It signals to lenders that you’re financially serious — a compensating factor that can help override a low score
If you’re currently paying off debt while saving for a home, check out our guide on what happens to your credit score when you pay off a loan — understanding this can help you sequence your payoff strategy to maximize your score before applying.
Step 5: Shop Multiple Lenders — This Is Non-Negotiable
With bad credit, lender overlays vary dramatically. One lender might decline you at 580. Another approves you at the same score. A third might approve you but charge 1.5% higher rate than a fourth.
Get quotes from at least 3–5 lenders before choosing. When you shop mortgage rates within a 14–45 day window, it counts as a single hard inquiry on your credit — so multiple rate checks won’t tank your score further.
Look at both banks and mortgage brokers. Brokers work with multiple lenders simultaneously and often have access to portfolio lenders who keep loans on their books rather than selling them — these lenders sometimes have more flexible standards.
Step 6: Consider a Co-Borrower
If you have a family member with strong credit willing to co-sign, this can dramatically change your options. The lender uses the lower middle score of the two borrowers, but the co-borrower’s income counts toward DTI qualification, which can make the difference.
What If Your Score Is Too Low Right Now?
If you’re below 500 and FHA isn’t an option yet, the honest answer is: spend 6–12 months improving your score first.
The fastest ways to raise your score:
- Dispute any credit report errors (20–100+ points in 30 days)
- Pay down credit card balances below 30% utilization (30–50 points in 30–60 days)
- Become an authorized user on a family member’s old, well-managed card
- Sign up for rent reporting — does paying rent build credit in 2026? Yes, if you use the right service
According to UQUAL, moving from 500 to 580 typically takes 3–6 months with consistent effort. That jump from 580 to 620 takes another 3–6 months. It’s not instant, but it’s doable — and the rate difference between a 580 and 680 score on a 30-year mortgage can be $300–$500/month.
Frequently Asked Questions
Can I get a mortgage with a 500 credit score? Yes — through FHA loans with a minimum 10% down payment. However, many lenders set overlays requiring 580 or higher, so you’ll need to shop specifically for lenders who work at program minimums.
How much higher is my mortgage rate with bad credit? Significantly. A borrower with a 620 score typically pays 1–2% higher than someone with 740+. On a $300,000 loan, that’s $200–$400 more per month. This is the real cost of bad credit on a mortgage.
Will applying for a mortgage hurt my credit score? Mortgage shopping within a 14–45 day window counts as one inquiry on your credit, so rate shopping doesn’t hurt you multiple times. One inquiry typically drops your score 5–10 points temporarily.
What’s the fastest way to improve my credit score before applying? Dispute errors on your credit reports and pay down high-utilization credit cards. These two moves can add 50–100+ points within 30–60 days in the right circumstances.
Should I wait to improve my credit or buy now? Run the math. If waiting 6 months improves your score enough to save $200/month in mortgage payments, that’s $2,400/year — $72,000 over a 30-year loan. Sometimes waiting is the smarter financial decision. If rates or home prices are rising fast in your area, the calculus changes.
This article is for informational purposes only and does not constitute financial or mortgage advice. Always consult with a licensed mortgage professional before making home financing decisions.