Bad credit? These lenders might be able to help
Just because your FICO score isn’t as good as you’d like, doesn’t mean you’re stuck with a bottom-tier mortgage lender.
In fact, some of the very best lenders out there are willing to help borrowers with credit scores near or below 600.
Of course, not everyone will qualify. And your rate will be higher than a “prime” mortgage borrower.
But you can still shop around for the best interest rate, fees, and customer service, just like any other home buyer.
Here’s where we recommend starting your search.
|Company||Minimum Credit Score||Stands Out For|
|New American Funding||580||Low credit minimum, top-rated service|
|Guaranteed Rate||580||Lowest rates on average|
|Freedom Mortgage||540||Low credit minimum|
|Caliber||580||Highly rated customer service|
|Navy Federal Credit Union*||580 but exceptions possible||Flexible credit requirements for veterans|
*Navy Federal Credit Union only serves veterans, active-duty service members, and select military-affiliated personnel
Editor’s note: The Mortgage Reports may be compensated by some of these lenders if you choose to work with them. However, that does not affect our reviews. See our full editorial disclosures here.
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The 6 best bad credit mortgage lenders
1. New American Funding
We liked New American funding when we wrote its full lender review. And we still do. But what gave it our #1 slot?
To start with, New American Funding (NAF) examines each mortgage application on its own merits rather than taking a tick-box approach.
That means it can sometimes be more sympathetic to those who’ve had financial problems in the past, including credit issues.
Additionally, NAF offers:
- Competitive mortgage rates, on average
- Strong customer reviews and very few complaints
- A wide range of types of mortgages, including FHA loans with a minimum credit score requirement of 580.
- Flexible customer service: in-branch, online, by phone, or any combination
- Fast turnaround. NAF says, “We guarantee that your loan will close in 14 business days. Period,” according to its website (this includes purchase mortgages only; not refinances)
- A constructive approach to down payment assistance programs
- An A+ rating with the Better Business Bureau (BBB)
- A bilingual call center with English and Spanish
The only big drawback to New American Funding is that it’s not licensed to lend in New York state or Hawaii.
But if you live in any of the other 48 states, this lender is likely worth a look for a bad credit home loan.
2. Guaranteed Rate
Guaranteed Rate may not be quite as skewed toward borrowers with bad credit as New American Funding. But it still approves applications from people with scores as low as 580.
And it’s strong in other respects:
- Highly competitive mortgage rates and origination costs
- Excellent reputation for customer service and few complaints
- A comprehensive range of mortgage products
- Licensed to lend in all 50 states
- A+ BBB rating
- 300-strong branch network if you prefer to work face to face
- Highly praised technologies deliver a good online experience
Guaranteed Rate had the second-lowest average mortgage rate among our top lenders in 2019. (The lowest of all was Navy Federal Credit Union, but it’s only available to veteran and military borrowers.)
Of course, if your credit is on the low end, your rates will likely be above average.
But when you start with a lender that’s known to offer low rates, you may have a better chance at getting a good deal.
3. Freedom Mortgage
Although Freedom Mortgage is an expert at VA loans (those for veterans and service members), it offers a good range of other mortgage products.
Freedom Mortgage may even approve FHA loans for some borrowers with scores as low as 540. Here’s what else you need to know:
- Rates are generally competitive, though average loan fees are a bit higher than some other lenders on this list
- Takes into account “non-traditional credit histories.” So if you have a sparse credit history, it may look at on-time payments for things like rent, utilities and so on, which don’t typically appear on credit reports
- Praised for customer service on many online forums
- Traditional, personalized approach, meaning you can expect more face-to-face or phone encounters. There’s not much of an online experience
- Licensed in all states and has branches in 26
It’s definitely worth getting a personal quote from Freedom, especially if you’re a veteran or service member in the market for a VA loan.
Like many on this list, loanDepot is a fairly recent, tech-first mortgage lender.
loanDepot has only been around since 2010, but during that time it’s grown to the fourth biggest mortgage originator in the US, largely on the back of its innovative lending technologies.
Here’s the lowdown:
- Minimum credit score of 580
- The 5th highest score in J.D. Power’s 2020 mortgage origination satisfaction study and an A+ BBB rating
- Typically has very fast loan processing with many parts of the lending process automated
- Not the lowest rates or fees on our list, but generally competitive
- Higher rate of CFPB complaints than most on our list
- Licensed in all states with branches in 43 states
- A wide portfolio of loan types
If you’re a big fan of technology and prefer an online application process, loanDepot may be a good option for you.
5. Caliber Home Loans
Caliber delivers a much more personalized and engaging sort of customer service than those who encourage more online interactions.
It has some slick technologies in its back office and may offer faster-than-average closing times. But you’ll be dealing with a person rather than a screen.
Here’s what to expect from Caliber Home Loans:
- Competitive rates and costs
- Minimum credit score of 580
- Few customer complaints to the CFPB
- Good customer reviews online
- An A rating from the BBB
- Licensed in all 50 states
- Happy to work with down payment assistance programs
- Great range of types of mortgages
If you prefer to work with humans rather than computers, Caliber is a shoo-in for your shortlist.
6. Navy Federal Credit Union
Navy Federal Credit Union is a special case. To start with, it’s a credit union, and only members can get loans from it.
Navy Federal membership is restricted to veterans, service members, and others with close affiliations with the military. For that reason, it’s a specialist in VA loans.
For those who are eligible for membership, Navy Federal Credit Union offers:
- The lowest average mortgage rates and fees on our list (though part of that can be chalked up to its focus on VA loans, which have lower interest rates)
- No minimum credit score. Navy Federal says, “A member’s approval isn’t determined by just one number — but by several factors,” meaning it will likely consider lower scores with compensating factors and non-traditional credit histories
- Highest J.D. Power customer satisfaction score on our list
- But also the highest proportion of CFPB complaints
- A+ BBB rating
- No FHA or USDA loans. If you’re not eligible for a VA loan, you may need to look elsewhere
- Good online services, including an app that lets you track your loan application’s status
If you’re eligible for membership and a VA loan, you’ll want Navy Federal on your shortlist.
What’s considered ‘bad credit’ for a mortgage?
We’re talking about bad credit mortgage lenders here. But what exactly is “bad credit”?
Many lenders follow the scoring model from FICO, the company that created the most widely used scoring technologies. It reckons that anything below 580 counts as “poor.”
If your score is in the 580-669 range, it’s actually considered “fair.” If it’s between 670 and 739, it’s “good” — and anything above that is “exceptional.”
- Below 580 — Bad credit
- 580-669 — Fair credit
- 670-739 — Good credit
- Above 740 — Excellent credit
However, it’s important to understand that the definition of “bad credit” can vary, because lenders are free to define their own score ranges how they like.
That means what one lender considers a bad credit score could be perfectly acceptable to another lender.
Just because your score is in the poor range, that doesn’t mean you can’t get approved for a mortgage. But you’ll likely need a sizable down payment and a good story that explains your low score and shows that its cause is in your past.
You’re also likely to have to seek out a sympathetic lender. And that’s where our list of the best bad credit mortgage lenders can come in handy.
How a low credit score affects your mortgage
Even if you’re approved for a loan, a low score means you’re going to pay a higher mortgage rate than someone with a better score. That part is unavoidable.
How much higher? FICO has a calculator that could give you an idea. It actually doesn’t go below 620, but it can give you a feel for the difference a credit score makes.
Here’s how the numbers looked for a $250,000 mortgage (though keep in mind that these will vary as mortgage rates change daily):
|Credit score range||Estimated APR*||Monthly payment||Total interest paid over 30 years|
*Interest rates and payments were sampled in November 2020 and may not reflect current market rates
The monthly differences may look small. But you can see that even paying just $30 more per month, your total interest costs go up by $10,000.
As credit scores go lower, the difference in interest rates and payments grows.
Bad credit mortgage loan options
Of course, you’re not just seeking out the best lenders for people with bad credit. You need a type of mortgage that can accommodate your needs. Here are the main ones:
- FHA loans — FHA loans, backed by the Federal Housing Administration, are the most popular option for borrowers with bad credit. Most borrowers need a minimum credit score of 580 and a 3.5% down payment to qualify. But if you can make a 10% down payment, you may be approved for an FHA mortgage with a credit score of 500-579
- VA loans — VA loans have no formal minimum credit score. But most lenders want at least 620. Some go as low as 580. And a few, such as Navy Federal Credit Union, don’t specify a score and may be sympathetic if yours is low for a good reason. We excluded Veterans United from our list because it wants a 660 credit score or better
- USDA loans — USDA loans typically require a credit score of at least 640 — so they may not be the best for low-credit borrowers. But if your score is high enough, you can use a USDA loan to purchase a home with no down payment
- Non-conforming loans — These loan programs, for which banks and lenders set their own rules, may allow credit scores below 600
Conventional mortgages — loans that conform to standards set by Fannie Mae and Freddie Mac — require a minimum score of 620 and a 3% down payment. That’s why FHA loans are more popular among those with lower credit scores.
Non-conforming loans do not meet the standards set by Fannie Mae and Freddie Mac, meaning they’re not eligible for backing from those agencies.
As a result, non-conforming loans typically have higher interest rates — but they may be available to borrowers with low credit scores.
Pick the type of loan that suits you best. If you’re eligible for a VA loan, it’s likely to be one of those.
Credit score vs. credit report
It’s easy to fixate on your credit score — the single number that represents your reliability as a borrower.
But mortgage lenders don’t just look at this number. They also do a thorough review of your credit report.
Your credit report shows your full history as a borrower.
If you have a low score because of a past event — like a foreclosure — but you’ve been a reliable borrower since then, lenders might be more forgiving.
On your credit report, lenders want to see:
- A history of on-time payments
- Reasonable credit usage (below 30% of your full credit limit is best)
- No new credit lines opened near the time you’re applying for a mortgage
Refinancing with a low credit score
How easy it is to refinance with bad credit will depend on your current loan type, and what you want your refinance to achieve.
If you currently have a government-backed loan, you may be in luck.
FHA, VA, and USDA all offer Streamline Refinance programs that do not require credit score approval. However some lenders check credit anyway, so you’ll have to search for one that doesn’t.
To use a Streamline Refinance, your new loan must be the same type as your current one — for instance, refinancing a VA loan to a VA loan, or FHA to FHA.
Conventional loan refinance
Conventional refinances, like conventional home purchase loans, require a credit score of at least 620.
If your current mortgage is a conventional loan and your credit score has fallen, you may be eligible for an FHA refinance. However, FHA loans require expensive mortgage insurance. This could eat up enough of your savings that refinancing isn’t worth it.
If you want a cash-out refinance, you’re likely to need a higher credit score.
If you currently have a conventional loan but your credit score isn’t high enough for a conventional cash-out refinance, an FHA cash-out refinance might help you access your home equity.
What to do if your credit score is too low for a home loan
The obvious way to get a mortgage with bad credit is to improve your score. You may be surprised how quickly you can make a material difference.
For tips on how to raise your credit score fast, read our Guide to improving your credit score.
There are other ways to qualify for a mortgage with bad credit, too.
- Pay down as much existing debt as you can — If you’re a more attractive borrower in other respects, lenders may be more forgiving about your score. Paying down existing debts, like credit cards and auto loans, improves your debt-to-income ratio. This has a big impact on your home loan eligibility
- Build up your savings — Making a bigger down payment can also help your case, as it reduces your risk to the mortgage lender. Borrowers with a cushion against financial problems are less likely to default. If you’re able to make a 20% down payment, a low credit score might not matter as much
- Qualify on a friend’s or relative’s good credit — If you can get someone with good or great credit to co-sign your mortgage application, your problems may be over. But it’s a huge ask because your loved one could lose a lot of money and creditworthiness if your loan goes bad
We wouldn’t recommend asking for a co-signer in any but the most exceptional circumstances, because this can be a huge risk to the person helping you out. If your loan defaults, they’re on the line for the money.
Instead, we recommend steadily building up your credit score.
Even if you can’t pay off big debts in full, making on-time payments and keeping your credit usage under 30% can go a long way toward improving your score and boosting your mortgage eligibility.
How to find the best mortgage rate with bad credit
Some lenders specialize in “top-tier” borrowers, who have excellent credit scores, bulletproof finances, and large down payments.
But other lenders, including the six on our list, are perfectly comfortable helping those with damaged credit.
So shop around to see who can offer you the best deal. And if one lender turns you down, don’t assume they all will — because that’s not how mortgage lending works.
Each lender’s business priorities can change from day to day. And different lenders offer different deals.
So putting some effort into comparison shopping could find you the loan you want at the best rate you can get.
To find the best bad credit mortgage lenders of 2020, we started by looking the 25 top lenders on a 2019 market share report from federal regulator the Consumer Financial Protection Bureau (CFPB). We also looked at a few major online lenders, as these companies are growing in popularity.
We whittled that down to our six best by filtering out lenders that required credit scores over 580; charged higher mortgage rates than the average among all top lenders; or didn’t offer FHA loans, because many home buyers with poor credit rely on those.
And we took other factors into consideration. Did a lender have a disproportionate number of customer complaints filed with the CFPB? Did it get too many negative customer reviews on online forums? Did it receive a bad rating from the Better Business Bureau? Did it do well in the J.D. Power 2020 U.S. Primary Mortgage Origination Satisfaction Study?
We didn’t automatically exclude lenders based on those last four. But you’ll find the details as you read the following reviews of each of our finalists.
3 credit habits that you need to break
Are you using your credit card responsibly? Or do you have a few bad habits? Take a look at three common bad habits that people have with their credit cards and the best ways to stop doing them.
Habit 1: Pushing the limits
The first bad credit habit is pushing your outstanding balance close to its limit. What’s wrong with that? The first problem is that you’re giving yourself a larger debt load to contend with every month — one that accumulates interest the longer that it sits. It could be very difficult to pay down, and it could even lead to you maxing out your card.
The second problem with this habit is that it leaves you vulnerable to emergencies. You’ve taken up the majority of your available credit, so you can’t depend on it for unexpected payments. What if you need to pay for an urgent repair and there’s not enough room on your card? What can you do?
To avoid that difficult situation, you could apply for an online loan to help you cover the emergency costs and move forward. See how you can apply for an online loan in Ohio when you have no other safety nets to fall back on. It’s important that you only turn to this solution when you’re dealing with an emergency. It’s not for everyday purchases or small budgeting mistakes.
In the meantime, you should try your best to keep your credit utilization at 30% or lower — this means that your balance should be below the halfway point of your limit.
Habit 2: Paying the minimum
You pay your credit card bills on time, but you only give the minimum payment. While this habit can stop you from racking up late fees and penalties, it can still get you into hot water if you’re not careful.
Only paying the minimum for your bill will make it very difficult for you to whittle down the balance, especially when you’re continuing to charge expenses on your card. You’re only taking $20-$25 off a growing pile.
So, what can you do? If you’re paying this amount by choice, stop it — you’re only making things harder for yourself down the line. If you’re paying this amount because you don’t have any more funds, look at your budget to see whether you can cut your monthly costs to get more savings and use them to tackle your balance.
Habit 3: Using it for every single expense
You don’t need to put every single expense on your credit card. Your morning coffee? Your afternoon snack? Putting these small, everyday expenses on your card is a habit that can make your balance climb quickly.
You also don’t want to put some very important expenses on there, like mortgage payments. For one, these payments are large and will take up a significant amount of your credit. Secondly, if you need to use a credit card to make these payments on time, you need to reinvestigate your budget to see whether you can actually afford your living space.
So, what you should you do? Use a debit card, cash or checks to pay for the items above. Only put expenses on your credit card that you’re positive you can pay off in a reasonable timeframe.
Don’t let these bad habits drag you down and get you into financial trouble. Break them now, before it’s too late.
Free credit reports have been extended; here’s why it’s important to check yours regularly
Typically, you’d be able to check your credit report — at least for free — just once annually through each of the three major credit reporting agencies. But thanks to the coronavirus pandemic, credit reports are now more accessible than ever.
Credit reporting companies Equifax, Experian and TransUnion are all offering free credit reports weekly through April 20, 2022.
The move means better insight into your financial health during what, for most, is an economically challenging time. According to experts, it might also be a time that’s ripe for at-risk personal information and identity theft, too — even more reason consumers should be checking their credit on the regular.
Have you checked your annual credit lately? If not, here’s what you need to know about these free nationwide credit reports and how to get them. If you’re not sure where you fit on the credit score spectrum, you may want to start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
Free credit reports for all?
The nation’s three credit bureaus initially started offering free weekly credit reporting last year, just after the pandemic began. In early March, they announced they’d extended the offer for another year, this time through April 20, 2022.
To request your free credit reports and access copies, you can go to AnnualCreditReport.com and provide some basic information to verify your identity (things like your date of birth, Social Security Number, and address).
Once your report is ready, you should see a detailed list of all open and closed accounts in your name, your payment history, recent credit activity and more.
Protect yourself from identity theft
There are many reasons why checking your credit activity is important, but chief among them? That’d be the prevalence of data breaches in today’s world — not to mention the risk of identity theft they come with.
“In the past, it was perfectly acceptable for people to check their credit history once a year, but now with security breaches happening on a regular basis, consumers should be monitoring their credit more closely than ever,” said Clint Lotz, president and founder of TrackStar.ai, a predictive credit technology firm.
Lotz said the Equifax breach — which exposed over 147 million Americans’ personal information in mid-July 2017 — is the perfect example of why watching your credit report is important as far as identity theft protection goes. The pandemic, he said, adds an extra layer of risk to things.
“It took them [Equifax] months before they even realized they had been hacked, and considering that they hold files on hundreds of millions of Americans, it’s fair to say that many identities were stolen by the time they caught up to it,” Lotz said. “With many of us worrying about very serious issues not related to our credit, it’s a prime time for that stolen data to be put to work by bad actors in slow, methodical ways and in the hopes that nobody notices it.”
More reasons to check your credit
Checking your credit health often isn’t just good for detecting fraud alerts and to protect your identity, though. You can also monitor your report for errors — things like inaccurately reported late payments, for example — and then dispute those with the credit bureau.
If the error gets corrected, it could improve your credit score and make a jump from bad credit to a FICO score that’s more favorable. Not sure of your credit score? Head to Credible to check your score without negatively impacting it.
You can also use your credit reports and scores to monitor your financial habits — like the timeliness of your payments or how much debt you have left to pay off. Both of these factors can play a big role in your score, as well as how likely you are to get approved for loans, credit cards and other items.
“If you’re taking out a loan, getting insurance or even applying for a new job, checking your credit will allow you to see an overview of what would be seen by others looking at your credit,” said Leslie Tayne, a debt relief attorney with the Tayne Law Group. “Staying up-to-date on your credit reports and information allows you to know exactly where you need to improve.”
Want to be sure your credit is stellar before applying for a loan or insurance policy? Consider Credible’s partner product Experian Boost, which lets you use positive payment history on utilities, streaming and other bills to improve your credit score.
Set up a monitoring service, too
Though checking your credit reports manually is smart, you should also consider signing up for a credit monitoring service. These consumer financial services check your credit information and score regularly and alert you of any changes.
If you’re interested in monitoring your credit or improving your score, head to Credible and learn more about how Experian can help. You can also use Experian Boost to get credit for on-time bill payments.
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Do Personal Loans Have Penalty APRs?
Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.
The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”
Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.
Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.
Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.
Other common personal loan fees include:
- Interest: The monthly charge you pay to borrow money
- Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
- Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
- Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)
As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.
None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.
Find the best personal loans
For rates and fees of the Blue Cash Preferred® Card from American Express, click here.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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