Bad credit · Honest guide
How to Buy a House With Bad Credit
FHA insures mortgages down to a 500 credit score. Bankruptcy locks you out for two years, not ten. And roughly one in eight FHA buyers closes with a score under 620. Bad credit isn’t a wall — it’s a tax, and this guide quantifies it to the dollar so you can decide: pay it and buy now, or spend 12 months erasing it. Plus the predators who target exactly this search, and how to spot them.
Last updated July 2026
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Buying with bad credit, the short version
The programs are more forgiving than the internet says: FHA accepts scores from 580 with 3.5% down — and from 500 with 10% down. VA and USDA set no federal minimum score at all. The waiting periods after disaster are short: two years after a Chapter 7 bankruptcy on FHA or VA, three years after a foreclosure on FHA.
The honest counterweight: bad credit is expensive. Between a higher rate, pricing adjustments, and mortgage insurance that can cost triple, a 620 buyer can pay $400–$600 more per month than a 760 buyer on the same house — six figures over the loan. And there’s a gap between the rules and the market: lenders add their own “overlays,” so while HUD allows 500, most lenders stop at 580–640.
This guide covers the whole journey: what’s realistic at each score tier, what it costs, the waiting periods after bankruptcy and foreclosure, the paths for thin files and collections, the buy-now-vs-repair-first math, and the scams built for this exact audience. (Exact score thresholds by program and credit-building tactics get their own deep dives in our companion guides.)
The facts
What “bad credit” actually means to a mortgage lender
Your app’s score isn’t your mortgage score, your co-signer won’t save you, and the scoring system itself just changed.
FICO’s bands: poor under 580, fair 580–669, good 670–739, very good 740–799. In mortgage terms, financeable “bad credit” runs from 500 to about 669. But the market skews high: the median score on new mortgages is 775 (NY Fed, late 2025) — while the average FHA purchase borrower scores 684, with 12.8% below 620 and roughly a quarter below 640. Translation: sub-prime-credit approvals are real, and they overwhelmingly happen at FHA.
Three rules that surprise almost everyone
1. Your consumer app lies to you (a little). Mortgage lenders pull a tri-merge report with the older “classic” FICO models — not the FICO 8 or VantageScore your banking app shows. The difference is routinely 20–50 points in either direction. The only score that matters is the one a lender pulls.
2. The lowest score wins (against you). With co-borrowers, the loan is priced off the weakest borrower’s representative score. Adding a good-credit spouse or parent does not fix a low score — it can add income for the debt-to-income math, but the rate tier stays yours.
3. The scoring system is mid-transition — and it may help you. In April 2026, federal regulators approved VantageScore 4.0 (with FICO 10T to follow) for Fannie, Freddie and FHA loans. These newer models can score rent and utility history and reach millions the classic models can’t. The catch: it’s a limited rollout at roughly 21 pilot lenders so far — most still use classic FICO. If you have thin credit but a clean rent record, ask each lender which model they price with. It can be the difference between “no score” and approved.
The map
Your realistic options, tier by tier
The same buyer faces a completely different market every 40 points. Here’s the honest terrain.
500–579: possible, but a needle-in-a-haystack search
HUD allows FHA at these scores with 10% down and manual underwriting — but most lenders won’t do it. Finding a true low-overlay lender takes real shopping, and expect demands for reserves and a documented clean rent history. Honest advice: if you’re here because of high credit-card utilization, a few months of paydown likely moves you above 580 and changes everything. If you’re here from a recent bankruptcy or foreclosure, the waiting-period clock (below) probably governs anyway.
580–639: FHA country
At 580+, FHA opens at 3.5% down — this is the workhorse tier where most bad-credit purchases happen. Many lenders overlay to 620, but plenty lend at 580. VA works here for eligible veterans (the VA sets no floor; overlays run 580–620 — see our VA loan guide). At 620, conventional technically opens — but its risk-based pricing at this score is brutal (adjustments near 3.25% of the loan at high LTV, PMI up to 1.5%/yr), so FHA usually wins the math here, because FHA’s mortgage insurance is flat: the same 0.55% whether you score 580 or 800.
640–700+: run both quotes — the crossover zone
At 640, USDA joins (its practical automated-approval threshold) and every program is open. Between here and about 680–700 sits the crossover: below it, FHA’s flat insurance beats conventional’s risk-priced PMI; above it, conventional pulls ahead — and its PMI cancels at 20% equity, while FHA’s insurance is permanent with less than 10% down. The only way to know your crossover is two Loan Estimates, same day, side by side.
And the viral myth about the 2023 pricing change: no, good-credit borrowers do not “subsidize” bad-credit borrowers. The 2023 restructure of the conventional pricing grid recalibrated fees — some up, some down — but higher scores still pay less than lower scores at every down payment level, full stop. The regulator itself (FHFA) publicly corrected this misreading.
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The price tag
What bad credit actually costs, in dollars
Not a lecture — a receipt. Here’s the tax, itemized.
Three meters run against a low score at once. The rate: mid-2026 pricing shows roughly a 1.5-point spread between a 760+ borrower and a 620–659 borrower on a conventional 30-year — on a $350,000 loan, about $433/month and ~$156,000 over the term. The mortgage insurance: conventional PMI runs ~0.46%/yr at 760+ and up to ~1.5% at 620–639 — roughly triple. The quiet third meter: in most states, homeowners insurers also use credit-based scores, so the same file pays more for coverage too.
The receipt: a $400,000 home, 10% down, mid-2026
760 borrower, conventional: ~6.4% rate, PMI ~$138/mo → about $2,391/month.
620 borrower, conventional: ~7.7%+ after pricing adjustments, PMI ~$450/mo → about $3,024/month. The gap: ~$600 a month — more than $150,000 over the loan.
The same 620 borrower, switched to FHA: ~6.9% rate, flat 0.55% insurance → often the cheapest monthly of the impaired options, which is exactly why FHA dominates this tier. The trade: 1.75% upfront and insurance that never cancels — recovered later by refinancing to conventional once score and equity improve.
The lesson isn’t despair — it’s leverage. Every tier you climb before locking (580 → 620 → 660 → 700) claws back real money. That’s what makes the buy-vs-repair decision below worth doing with a calculator instead of a feeling.
After the storm
Bankruptcy, foreclosure, short sale: the real waiting periods
Far shorter than the folklore — and the clock starts where most people don’t expect.
The 2026 waiting periods, program by program
Chapter 7 bankruptcy: FHA and VA — 2 years from discharge. USDA — 3 years. Conventional — 4 years (2 with documented extenuating circumstances).
Chapter 13 bankruptcy: as little as 1 year into the payment plan with court approval on FHA and VA (manual underwriting). Conventional — 2 years from discharge, 4 from dismissal.
Foreclosure: FHA and USDA — 3 years. VA — 2 years. Conventional — 7 years, or 3 with extenuating circumstances and a larger down payment.
Short sale / deed-in-lieu: FHA — 3 years (with a notable exception if you were current through the sale). VA — 2. Conventional — 4.
Where the clock starts: bankruptcy counts from the discharge date; foreclosure counts from the title-transfer/completion date — often a year or more after you moved out. Pull the county record and pin the exact date before assuming anything.
⚠️ Two things the stale articles get wrong
“Extenuating circumstances” is a real discount — with rules. A documented one-time catastrophe beyond your control (serious medical event, job loss, death of a wage-earner) can cut waits dramatically — FHA’s foreclosure wait can drop to 12 months. But divorce alone doesn’t qualify under conventional rules, and you must build a documented file, not just tell the story. Also: surviving the clock isn’t enough — every program requires re-established clean credit (typically 12–24 months without new lates) on top of the seasoning.
The FHA “Back to Work” program is dead — since 2016. Any page selling its 12-month waits is a decade stale. Same for the old “2-year conventional short-sale wait”: it’s been 4 years for ages.
The side doors
Thin files, collections, and manual underwriting
The paths for buyers whose problem isn’t a low score — it’s no score, old debts, or a messy report.
No score? There’s a lane for that
FHA, VA, USDA, Fannie and Freddie all underwrite non-traditional credit: typically 12-month histories of rent (weighted heaviest), utilities, insurance and phone. Fannie Mae’s underwriting system can also read 12 months of rent payments straight from your bank statements — positive payments only; missed ones can’t hurt you — and Fannie found 17% of initially-declined first-time buyers would have passed with rent history counted. Manual underwriting (a human reviewing the file) is how sub-620 and no-score FHA loans actually close: tighter ratios, and compensating factors like reserves, low payment shock, and steady employment carry the day.
Collections and medical debt: the rules nobody quotes right
FHA does not require paying off collections. Medical collections are excluded from FHA underwriting entirely, at any balance. Non-medical collections under $2,000 aggregate are ignored; above it, the lender either sees them paid, on a payment plan, or adds a phantom 5% of the balance to your monthly DTI. Don’t blindly pay old collections — paying can briefly drop your score by re-aging the account; coordinate timing with your loan officer and negotiate written terms.
Medical debt status, mid-2026: the federal rule banning medical debt from credit reports was struck down in court in 2025 — but the bureaus’ voluntary changes still stand: paid medical collections don’t report, unpaid ones under $500 don’t report, and new ones get a 12-month grace period before appearing.
Married in a community-property state? (AZ, CA, ID, LA, NV, NM, TX, WA, WI): on FHA and VA loans, your non-borrowing spouse’s debts count in your DTI even if they’re not on the loan — their score doesn’t. Conventional has no such rule, which quietly decides FHA-vs-conventional for some couples.
The centerpiece
Buy now or repair first? The actual math
The honest answer depends on why your score is low — and what your market is doing while you wait.
The two scenarios, priced
Buy now at 600, FHA, $350,000 home: ~6.9% + flat insurance ≈ $2,380/month. You pay the bad-credit premium — but you start building equity immediately.
Repair first, 12–18 months to 680+, then buy conventional: you save perhaps $150–$250/month on the loan. But at 4% appreciation the house rose ~$21,000 while you waited, and you paid $18,000–$30,000 in rent. In a rising market, waiting usually costs more than the premium you avoided.
The best-of-both path most buyers should plan: buy FHA now, then refinance to conventional once you reach ~20% equity and a better score — killing the permanent insurance and cutting the rate. Budget 2–6% for the refi and never count on rates falling; the plan must survive today’s rate.
Repair-first clearly wins when: you’re under 580, your DTI is also broken, or you’re within 6–12 months of a waiting-period expiry or a score-tier jump. Buy-now wins when: you’re 580+, income is stable, your market is rising, and down payment assistance is available (2,679 programs nationwide).
✅ The moves that actually move scores before closing
Pay down card utilization — the single fastest lever. Dropping cards from ~80% to under 10% can add 20–50 points in one reporting cycle, because utilization has no memory. If your damage is utilization-driven, you may be 60–90 days from a different tier. (Collections and late payments, by contrast, fade slowly — months to years; post-bankruptcy rebuilding to 640+ typically takes 12–24 months.)
Rapid rescore: after a paydown or a corrected error, your lender can push proof to the bureaus and re-pull in 3–5 business days — capturing the gain before you lock. Lender-only, and it can’t remove accurate negatives.
Time your disputes. Open disputes can freeze automated underwriting and stall closings — resolve report errors before the lender pulls credit, not mid-escrow.
And the co-signer reality check, once more: a good-credit co-borrower adds income, not points. The loan prices off the lowest score in the room.
The predators
The traps built for bad-credit buyers
This search term is a hunting ground. Here’s the field guide.
🚨 Never, under any circumstances
CPNs and “new credit identities.” Anyone selling a “credit privacy number” or telling you to use an EIN in place of your SSN is selling you a federal crime — these numbers are frequently stolen children’s Social Security numbers, and people go to prison for using them.
Advance-fee credit repair. Under federal law (CROA), a credit-repair company cannot charge you before completing services and cannot remove accurate negatives — no one can. Everything legal they do, you can do free. Upfront fees, “guaranteed deletions,” or advice to dispute true information are the three tells.
“Guaranteed approval” and advance-fee loans. No legitimate lender guarantees approval before underwriting or charges cash to “release” funds.
⚠️ Legal, but usually a bad deal for you
Contract for deed and rent-to-own, aggressively marketed to credit-damaged buyers: the CFPB found these often “structured to fail,” with inflated prices, balloon payments, and forfeiture clauses that take everything after one missed payment — and they usually don’t even report to build your credit. Hard-money and high-rate non-QM purchase loans (8–11%+) marketed to owner-occupants “one day out of foreclosure”: almost always worse than waiting 12–24 months for FHA. Steering: a loan officer who quotes only FHA (or only conventional) without showing both estimates isn’t shopping for you. And “buy now, refinance later” as a promise: it’s a legitimate plan only if the payment works at today’s rate with no refi — rates, your credit, and your equity in two years are all guesses.
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Quick answers
Bad credit and buying: common questions
Can you buy a house with bad credit?
Yes. FHA insures loans from a 580 score with 3.5% down — and from 500 with 10% down. VA and USDA set no federal minimum at all. The practical hurdle is lender overlays (most stop at 580–640) and the cost: expect a higher rate and pricier mortgage insurance until your score improves. About one in eight FHA buyers closes below 620.
What’s the lowest credit score that can buy a house?
500, through FHA with 10% down and manual underwriting — real but rare, since most lenders overlay higher. At 580, FHA’s 3.5%-down door opens and the market gets much wider. Below 500, no standard mortgage program exists; that’s a signal to spend a few months on credit repair first, not to seek exotic financing.
How long after bankruptcy can I buy a house?
Much sooner than the folklore says: 2 years after a Chapter 7 discharge on FHA or VA (4 on conventional, 2 with documented extenuating circumstances), and as little as 12 months into a Chapter 13 payment plan with court approval. You’ll also need re-established clean credit — typically 12–24 months without new late payments.
How long after a foreclosure?
2 years on VA, 3 on FHA and USDA, 7 on conventional (3 with extenuating circumstances). The clock starts at the title-transfer date — often a year or more after you moved out — so pull the county record for the exact date. If the mortgage was discharged in a bankruptcy, the shorter bankruptcy clock may apply on conventional loans.
Do I have to pay off collections before buying?
Usually not. FHA excludes medical collections entirely and ignores non-medical collections under $2,000 total; above that, they’re paid, on a plan, or counted as a phantom 5% monthly payment in your DTI. Warning: paying an old collection can briefly drop your score by re-aging it — coordinate with your loan officer before paying anything.
Will a co-signer fix my bad credit?
No — this is the most expensive myth in the category. The loan is priced off the lowest representative score among all borrowers, so a good-credit co-signer doesn’t improve your rate tier. What they add is income (helping your debt-to-income ratio) — valuable, but different — while taking on full liability for your loan.
Why is my mortgage score different from the app on my phone?
Consumer apps show FICO 8 or VantageScore; mortgage lenders pull older “classic” FICO models from all three bureaus and use your middle score. Differences of 20–50 points are routine. The only number that matters is the one on a lender’s tri-merge pull — get pre-approved to see it.
Should I buy now or fix my credit first?
Depends on why the score is low. High card utilization: fix first — 60–90 days of paydown can jump a tier and it’s nearly free money. Recent bankruptcy or foreclosure: the waiting clock decides. Otherwise, if you’re 580+, income is stable, and your market is rising, buying now with FHA and refinancing to conventional later usually beats paying rent while the house appreciates without you.
Are credit repair companies worth paying for?
Almost never. Federal law bars them from charging before completing work and from removing accurate information — which is all most negatives are. Everything legal they do (disputing errors, goodwill letters) you can do free, and your lender can rapid-rescore genuine fixes in days. Anyone selling “guaranteed deletions” or a “new credit number” is describing a scam — the latter a federal crime.