First-Time Homebuyer Guide: Steps to Buying with Bad Credit

For most homebuyers, the purchase process begins long before they start house hunting. Most buyers spend years saving for a down payment and reaching a point of personal stability to get favorable loan terms. A 2025 study by TD Bank found 88% of respondents took steps to boost their credit scores before entering the housing market. They checked for errors, paid down debt, and proved they were reliable borrowers. 

These actions are also reflected in mortgage application trends. In September 2025, the average credit score to buy a house reached 736, the highest ever recorded. Lenders want to see high credit scores, while buyers want to save money any way they can. 

However, not everyone has a high credit score. If you have bad credit, you may be wondering if you can enter the housing market right now. 

Be encouraged. There are always options.

Our First-Time Homebuyer Guide: Steps to Buying With Bad Credit will help you understand how to move forward with bad credit. You can take steps to improve your credit score or work with mortgage lenders who can accommodate your circumstances.

How to Buy a House with Bad Credit

The first thing to understand is that bad credit is subjective. Different credit scores are required for different loan types, which means your credit might not be as bad as you think. The minimum credit score for most conventional loans is 620. However, some programs set the minimum score at 500 to make homeownership more accessible. If you have a credit score of 480, it can feel less daunting to bring it up to 500 than to reach 650 or 700 to buy a house. 

Additionally, your credit score isn’t the only factor that lenders consider. The mortgage company you work with will review your gross monthly income, down payments, and payment history when evaluating loan eligibility. If you have a low credit score but are stronger in other areas, buying a home with bad credit might be easier.

“Potential homeowners will miss out on opportunities because they rely on the public’s perception (or misperception) that it’s all about good credit when it comes to applying for a home loan,” says T.C. Obichang at eXp Commercial in Redlands, California. “Other factors are involved in determining your overall ability to pay off the loan. As a mortgage professional, our job is to look at all the variables and evaluate the strength of the borrower and make our determinations.” 

It’s possible to buy a house with the right plan and mortgage lender. Even if you have bad credit, there are almost always options. Here are seven steps to follow to make owning a home a reality.

Step 1: Check and Understand Your Credit Report

The first step, if you are worried about your credit score, is to face it directly. You can request free credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) to see where your scores are. You can’t take steps to improve your bad credit without learning its current level first. 

Once you know your credit score, you can decide whether you want to take steps to improve it or enter the housing market immediately. While it can take time to fix bad credit, there are a few ways to potentially improve your score. 

For example, you can check for credit score errors that mistakenly damage your rates. You could also consider paying down some of your debt, even if it reduces your down payment. A trusted financial advisor can create a credit improvement checklist and pathway to raising your score. 

“You can purchase a home with damaged credit, but it is worth the time to work with a credit repair company and wait six months to get your score to a higher level,” says Mike Constantine, at Remax Advantage in Trinity, Florida. “This can save you thousands up front and tens of thousands over the life of the loan.” 

Consider how much your credit score needs to improve to qualify for a loan. Even small changes of 20 to 40 points to your credit report could have a big impact on your mortgage options and interest rates.

Step 2: Explore Home Loans for Bad Credit Situations

After pulling your credit report, the next step is to review the mortgage loan options available to buyers with your credit score range. You may need to explore mortgage programs beyond conventional loans if you don’t have the time or ability to raise your credit score. Here are a few loans you may qualify for. 

• FHA loans: Loans by the Federal Housing Administration are designed for first-time homebuyers. They require a minimum 580 credit score with 3.5% down, or a minimum 500 credit score with 10% down. Some FHA loan requirements can change, so research credit score requirements to be sure.
• VA loans: Loans for veterans do not have a minimum credit score. However, good credit history usually results in better terms. 
• USDA loans: These loans for rural buyers usually do not have minimum credit scores, though most lenders prefer a score of 620 or above. 
• Nontraditional or subprime loans: your lender may recommend additional loan options that come with higher risks. While this could make it easier to buy a home, make sure you understand the terms of each loan and the costs associated with them.  

One of the main things to focus on when reviewing loan terms is your interest rate. However, you also want to check for expensive closing costs, high fees, and the potential for your monthly payments to increase suddenly.  

“Explore FHA or VA loans, consider a larger down payment, and work with a lender who understands credit-challenge scenarios,” says Mike Saladino, a Realtor at Keller Williams ONEChicago. “The right strategy can make homeownership achievable.”

Step 3: Strengthen Your Financial Profile

Even if you want to start the home search immediately, you can still take steps to increase your credit score to get a favorable mortgage loan. Save money to increase your down payment, which will lower your monthly costs while showing the lender you are serious about homeownership. You can also work to consolidate or pay off your debt. Consider how you want to allocate your money and the impact it will have on your mortgage application. 

One of the easiest ways to improve your credit and lending eligibility is to continue working and show that you have a steady income. Build your payment history each month by paying your bills on time, even if you can’t contribute extra to lower your debt. Lenders want to see healthy financial habits. 

Another option is to consider a co-signer. This is someone who agrees to take responsibility for your debt if you cannot make payments. A co-signer lowers the risk to lenders because there is a backup source for payments if the primary borrower can’t make them.

Once you feel like you are in the best possible place to receive a loan, start talking with lenders. Even if you only have the minimum credit score, you can prove that you took steps to improve it and reduce the overall risk on the loan. 

Step 4: Get Pre-Approved and Compare Lenders

Regardless of your credit score, shop around to different lenders and compare their proposed loan terms. Even small interest rate and fee changes can add up to hundreds in savings. Additionally, some lenders might outright reject you if you only have the minimum credit score. This is okay. Keep meeting with potential mortgage companies while working to improve your bad credit. 

“A trustworthy lender can either guide you to fixing your credit, or even find a program that will allow you to qualify for a higher risk loan,” says Andy Sabella at Addison Real Estate in Arlington, New Jersey. “There could be options.”

One thing to consider as you meet with mortgage lenders is the difference between the interest rate and the annual percentage rate (APR). The APR is the total rate you will pay on the loan once fees and other costs are added in. Approach a low interest rate but high APR with caution. There could be unexpected fees you aren’t ready for. 

Your Realtor should be able to help you understand your loan and expected mortgage payments. They can review your applications and highlight which ones would save the most in the long run.

Step 5: Use Down Payment Assistance and First-Time Buyer Programs

There are several options for buyers with bad credit who want to build stable financial futures. FHA loans are great examples of this. They are designed to offer low interest rates or provide options for people with low credit scores. 

If saving for a higher down payment is not an option, look into grants and other programs that could give you money to buy a house. You do not need to pay back most grants, while forgivable loans go away after certain qualifications are met. These programs can be found at the federal, state, and local levels, so research what is available and ask your Realtor if they know about anything that could help. 

Many of these programs can also be combined, allowing you to increase your down payment while also securing favorable loan terms. Conventional loans might be possible with the right assistance and grants in your area.

Step 6: Prepare for the Mortgage Process

If you are worried about your credit score, gather your financial documents and prepare yourself to respond quickly when mortgage lenders ask for information. Having various financial forms on hand will make responding to requests easier and could potentially increase your mortgage options if lenders have more information about you. Here are a few documents you will likely need:

• Tax returns from the past few years. 
• Pay stubs proving stable employment.
• Your recent bank statements. 
• Records of existing debt, like the paperwork for an auto loan. 
• Records of good debt, like student loans.
• Explanations of bad credit (like a divorce, a mistake in youth, or a credit bureau error).
• Proof that you are actively working to pay down debt, like records of monthly payments.  

It also helps to calculate your debt-to-income ratio (DTI) before you meet with lenders. Online tools can help with this, along with explanations of how to get the correct amount. You will take your recurring debt, like student loan payments, and divide it by your gross monthly income. The maximum DTI that lenders will approve loans for is 43% to 50%, but most lenders want a DTI of 36% or lower.

Be patient with your lenders. The underwriting process can take a while and requires countless documents. Even if you have a good credit score, you will still have to send various reports and documents to your lender.

Step 7: Close on Your Home and Build Good Credit for the Future

If you are clear about your credit history and honest about your finances, it’s possible to buy a house with bad credit. However, be prepared for extra costs. If your down payment is less than 20% of the purchase price of the home, your lender may require private mortgage insurance. This is usually a requirement for FHA loans, but not VA loans. The average PMI cost is $30 to $70 per month for every $100,000 you borrow. Once you pass the 20% threshold, this monthly cost is dropped. 

Even after you close on the house, continue to work on your bad credit score. Making regular mortgage payments on time can build a positive credit history and help raise your score. You might be surprised by how your credit report changes within a few years.

Also, know that you aren’t locked into your interest rate forever. “Once you have re-established your credit, you can always refinance,” says Michael Tessaro, a real estate agent from Fremont, California.  

When you have a higher credit score, you can refinance with a favorable loan that is less expensive than your current one. With refinancing, you can finally put your bad credit behind you.

Don’t Let Your Credit Score Keep You Out of a Home

Don’t feel discouraged if you have a low credit score, there are options for people who want to buy a house with bad credit. You can pay off some of your debt and have a smaller down payment, as long as you can afford the private mortgage insurance. You can look into FHA and VA loans, which are designed to make homeownership easier. Even some conventional mortgage loans might be in your reach.

Gather a team of people to help you with the purchase process. An experienced Realtor, a financial advisor, and a trusted mortgage professional can all help you buy a house. With the right people, you can achieve your homeownership dreams.

Turn to FastExpert to find real estate agents in your area, especially those experienced with first-time homebuyers and buyers with poor credit.