Want to buy a house with bad credit?

Easy. Just pay cash. :)

Obviously not helpful.

Most people will tell you "just work on your credit first." And yeah, that's good advice... eventually.

But sometimes you don't have time.

Maybe your lease is ending. Maybe your family is growing. Or maybe you're just done with renting.

This guide is for anyone who needs to buy now and wants to understand the rules of the game.

If your score is under 620, here's how to tip the underwriting scale in your favor, even when the numbers aren't.

Fill out this form if you'd like to be connected with a mortgage broker that specializes in lower credit lending.

Minimum credit score by loan type

Let's get this out of the way first.

FHA: 500 minimum with 10% down, 580+ gets you 3.5% down

Conventional: 620 minimum, realistically needs stronger profile

VA: No set minimum, but lenders usually want 580 to 620

USDA: 640+ preferred for automated approval, below 640 possible with manual underwriting

FHA is usually the best bet if you're under 620. But not all lenders go that low. Some stop at 580 or even 600. A mortgage broker can help find one that actually works with your situation.

In fact, your loan terms will likely be better with FHA if your credit is lower than 720 and your down payment isn't 20%.

There has been one instance where I've seen a conventional loan pass with a 580 credit score using 20% down payment. So conventional is possible, you just need a lot of money.

The underwriting scale (how they judge you)

Imagine a balance scale.
on the left side = negatives (credit issues, high debt, no savings)
on the right side = positives (cash, stable income, on-time payments)

The goal is to even the scale or tip it to the right.
Here's how each side stacks up:

Negative side examples:

1. Low credit score
2. High DTI
3. No down payment
4. No reserves
5. Recent late payments
6. Unstable income
7. Bankruptcy or foreclosure

Positive side examples:

• Bigger down payment
• 3+ months of reserves
• On-time payment history
• Low DTI
• Stable job
• Clean credit for past 12 months

You don't need to be perfect. You just need more strengths than weaknesses. Once you get enough positives on the sale, you get an approval.

The money/credit quadrant

	No Money	With Money
Good Credit	Could work	Will likely work
Bad Credit	Unlikely	Could work

Cash is one of the heaviest objects you can put on this scale

• 10% down required if score is under 580
• 3.5% down if score is 580 or higher
• 3–4 months of reserves is a huge plus
• Gift funds are allowed but your own money carries more weight

Even if your credit is rough, money in the bank shows you're financially capable. Lenders care a lot about that.

Reserves

Reserves are leftover cash after closing.
Lenders measure it in months of mortgage payments.

Example: $2,000 mortgage × 3 months = $6,000 in reserves

2 months is good, 3–4 is better. Reserves can be a game-changer if your credit is under 620 or you're getting a manual underwrite.

Bankruptcy or Foreclosure

Before we get too far into this, your credit score may be low because of a bankruptcy or a foreclosure/short sale.

If that's the case, we'll need to wait. Hard stop. Here are the waiting times:

*Foreclosure / short sale / deed in lieu:

FHA: 3 years

VA: 2 years

Conventional: 7 years

*Chapter 7 Bankruptcy:

FHA: 2 years from discharge

VA: 2 years

Conventional: 4 years

*Chapter 13 Bankruptcy:

May qualify after 12 on-time payments with court approval

If discharged, court approval isn't needed but history still matters

Fill out this form if you'd like to be connected with a mortgage broker that specializes in lower credit lending.

Minimum down payment requirements

FHA: 3.5% (580+), 10% (500–579)

Conventional: 3% for first-time buyers (620+), but 5%+ is more common

VA / USDA: 0% down

Down payment assistance sounds great, but it can backfire if your credit is shaky. It adds another loan, which can hurt your loan-to-value ratio and monthly payment.

Ideas on saving for the down payment, reserves, and closing costs

This is where most buyers hit a wall, especially if rent, inflation, and life are already eating your paycheck. But you've got options, even if you didn't start saving years ago.

Save windfalls
Tax refunds, work bonuses, birthday money from grandma, stash all of it in your down payment fund before it disappears into daily life.

Sell stuff you don't use
Old electronics, furniture, tools, or even clothes. Facebook Marketplace and OfferUp are full of people looking for what you already have collecting dust.

Get a gift
Okay, you didn't really save this, but maybe someone else did. If your parents or a relative have been planning to help with your first home, this might be the time to ask.
Start with "Hey, how have you been?" and see where it goes.

They might laugh at you.

Or they might say, "We've actually been setting money aside for this."

Sell an asset
That decent car parked outside? Maybe it's time to downgrade.
If your new place is close to work and the store, you might not even need it. The down payment from the sale might help more than the car itself.

Use retirement funds
For first-time homebuyers, you may be allowed to withdraw up to $10,000 from a 401(k) or retirement account without the early withdrawal penalty.
Double-check the current rules with your retirement provider. Rules change.

If you're fine with the penalty, then take it out.

Borrow against an asset
If you own your car free and clear, some lenders allow you to borrow against it and count that cash as an asset.
Just know that unsecured loans (like credit cards or personal loans) won't count.
And be careful, any loan you take out affects your debt-to-income ratio. This move could help, or it could backfire and knock you out of qualifying range.

Negotiate closing costs to be paid by the seller
The seller can't cover your down payment, but they can help with closing costs. That frees up more of your own money to go toward the down payment.

• Conventional loans (less than 10% down): seller can contribute up to 3%
• FHA loans: seller can contribute up to 6%

Your Debt-to-Income (DTI) ratio matters too

Debt to income means your debts divide by your income.

Not your netflix or phone bill. Just what is on the credit report.

Income is your wages before taxes are taken out.

Let's say your salary is $60k per year. On a monthly basis that's $5,000.00 per month.

Let's say your mortgage is going to be $2k and you currently owe $500 per month with a car payment. That's $2,500 / $5,000 = 50% total DTI. Also known as 'backend DTI"

Front-end DTI = just your future housing payment

Back-end DTI = housing plus all other debts

FHA allows up to 47% front-end and 56.99% back-end (but lower is better, especially if your credit score is lower)

Keep in mind your spouse's debt.

Community property states (your spouse's debts count against this ratio, even if they're not on the loan):
AZ, CA, ID, LA, NV, NM, TX, WA, WI

Automated vs Manual Underwriting

Automated:
Fast. Fewer docs. Computer says yes or no.

Manual:
Slower. More paperwork. A real person looks at your file.
But it gives you a shot when the algorithm says no.

Here are the basics for manual underwriting:

• 500+ credit
• Max 31% housing DTI
• Max 43% total DTI
• No disputed accounts over $1,000
• 12-24 months of on-time payments
• Compensating factors (like big reserves or strong rental history) help

How it affects your house hunt

Manual underwriting takes time. Plan for it.

• Don't offer a fast 14-day close
• Ask for 45 to 60 days when possible
• Protect your earnest money with financing contingencies
• Ask your lender if they'll fully underwrite your file before you shop

Work with an agent who understands that your approval might take longer.

Rebuilding credit to avoid all of this.

What makes up your score:

• Payment history: 35%
• Utilization: 30%
• Length of history: 15%
• New credit: 10%
• Credit mix: 10%

If you had to build your credit in a specific order, using your money where it's most effective first, this is how I'd do it.

1. Catch up on late payments (payment history is the highest weighted factor)
2. Ask for pay-for-delete on collections. This will get rid of the collection account as if it never existed. Remember, ask if they'll delete the account if you pay if off. Not just mark it as 'paid.'
3. Pay down credit cards below 30% of the limit
4. Add a secured credit card (if needed)
5. Pull your report at AnnualCreditReport.com and fix any errors
6. Stay current and give it time

Even a 20–40 point boost can open more options.

Skip the credit repair and debt relief companies

Most credit repair companies just charge you for things you can do yourself.

Avoid anyone who:

• Promises to delete accurate negatives
• Wants money upfront
• Suggests anything shady like creating a new identity

Debt settlement companies? Usually worse. They tell you to stop paying your bills, then settle one account and charge you for it while the rest of your credit falls apart.

If you need help, find a nonprofit credit counselor. They'll help you make a plan without trashing your credit.

Final Thoughts

Bad credit doesn't have to mean no house. You just need a strategy.

Bring more cash. Clean up your report. Work with a lender who actually knows how to handle tougher files. And don't let one number stop you from making progress.

If you made it this far, you're already doing more than most. That's a good sign.

Fill out this form if you'd like to be connected with a mortgage broker that specializes in lower credit lending.