Is it possible to get a mortgage with poor credit

Fannie Mae and Freddie Mac, the government-sponsored enterprises that drive many of the underwriting decisions lenders make, have guidelines for evaluating conventional borrowers with no traditional credit. Each loan program and lender has its own requirements, but generally to qualify with nontraditional credit you'll need to have made 12 months of timely payments for at least two to three types of continuing obligations, such as housing, utilities and insurance.

Be prepared to provide documentation of your payment history, such as canceled checks, money order receipts and account statements. The lender may also order a special report from a company that verifies rent, utility, phone and other payments. Not all lenders consider nontraditional credit, so you'll need to shop around and compare a few that do. Contact lenders and talk to loan officers to learn about your options.

Be aware that lenders have tightened their requirements since the COVID pandemic began, so it may be harder than usual to find one that will work with you. Lenders continue to be cautious, given an increase in mortgage delinquency rates in the second quarter and the ongoing recession, according to the Mortgage Bankers Association.

To make it easier to qualify for loans, you can take steps to build a traditional credit history. Secured credit cards and credit-builder loans are two ways to get started. Secured cards are backed by a cash deposit. With credit-builder loans, you make payments, and the amount you borrow is held in a bank account.

You can't access any of the money until you've repaid the loan. Here's what to know. What are credit history, credit report and credit score? The smart home for your credit. NerdWallet tracks your credit score and shows you ways to build it — for free. The difference between bad credit and no credit. Getting a mortgage with nontraditional credit. Offers a wide range of affordable mortgage products designed for military members. Has an online application for preapproval. Offers low rates compared with most lenders, according to the latest data.

Website does not provide customized mortgage rates based on credit score or other factors before you apply. Credit union membership is limited to veterans and current military members, their families, and certain federal employees, retirees and contractors.

Lenders consider four primary factors when reviewing a mortgage application:. The amount of debt you carry compared to the income you receive, also called your debt-to-income ratio or DTI.

The size of your down payment. Two or three positive factors might outweigh a negative one. Here's what you can do to improve each of them and bolster your chances of getting approved for a mortgage. Your credit score can determine what types of home loans you're eligible for, how high of an interest rate you'll be offered and how large of a down payment you have to make. Improving your credit takes time, but a higher score can help you start off your home loan on better terms, saving you money in the long run.

To calculate your debt-to-income ratio, or DTI, a lender will divide the total of your monthly debt obligations things like car payments or student loans by your monthly pretax income. A lender that qualifies you with a higher DTI is probably charging you a higher interest rate.

You can lower your DTI by paying down existing debts. While you're getting ready to buy a house, and during the homebuying process, you should avoid taking on any additional debts or making any major purchases. You can't change your employment history, but you can make sure your employment status is steady before you begin applying for mortgages. If you change jobs during the underwriting period, it can impact how much a lender is willing to loan you. The amount of down payment you'll need depends on what type of home loan you're getting.

If you are affiliated with the military, you may be able to qualify for a mortgage backed by the Department of Veterans Affairs. VA loans allow zero down payment. USDA loans , which are insured by the U. Department of Agriculture and meant to help lower-income borrowers living outside of urban areas, also have no down payment requirement.

Loans backed by the Federal Housing Administration can be beneficial to borrowers with lower credit scores because FHA loans tend to allow lower minimum credit scores. If your credit score is at least , you may be able to make a down payment that is as low as 3. FHA loans also allow borrowers to use gift money to go toward the down payment. If you are able to make a higher down payment, that may help offset a lower credit score in the eyes of your lender.

State-sponsored first-time home buyer programs offer down payment assistance and grants that can enhance your borrowing power. The bottom line? Shop around. You may qualify for a home loan with some lenders but not others, and you'll want to compare the different offers. Look closely at the rates, fees and other requirements to see which mortgage lender is offering you the best deal.

More from NerdWallet:. Calculate your mortgage payment. Compare mortgage rates. Tips for finding the best mortgage lender. NerdWallet's star ratings for mortgage lenders are awarded based on our evaluation of the products and services each lender offers to consumers who are actively shopping for the best mortgage.

The five key areas we evaluated include the variety of loan types and products offered, online conveniences, online mortgage rate information, and the rate spread and origination fee lenders reported in the latest available Home Mortgage Disclosure Act data. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team. A is the absolute lowest credit score needed to buy a house.

In reality, however, few lenders will accept a score that low. Bringing up your credit score can give you more loan options, get you a lower interest rate and allow you to make a smaller down payment. Mortgage lenders' requirements for borrowers vary, but if you have bad credit you should look for lenders that are willing to consider alternative credit data.

You'll have to provide the lender with documentation of this info. Having a stable employment history and saving up a larger down payment can help offset a weaker credit score.

Some kinds of mortgages, like FHA loans , have lower minimum credit score requirements. That said, if you can build your credit first, it will help you not only get a mortgage but also get a better interest rate. That can potentially save you thousands of dollars. The easiest mortgage to qualify for depends on you. For a VA loan you need to be an active or retired member of the military or a military spouse.

USDA loans have income and location requirements. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials. Compensation may factor into how and where products appear on our platform and in what order. But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you.

That's why we provide features like your Approval Odds and savings estimates. Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can. Homeownership can help you build wealth. When you apply for a mortgage, lenders will check your credit scores.

While you have many credit scores from different credit-reporting agencies, many lenders use FICO scores, which can range from to for base scores and to for industry-specific scores. These may not be the scores your lender uses when reviewing your credit, but they can give you a better idea of where you stand. Most people who take out mortgages have strong credit. The median credit score was for new mortgage originations in the first quarter of , according to a Federal Reserve report.

Only a small percentage of new mortgages were taken out by people with scores below While getting a home loan with scores in the low s is possible, the Consumer Financial Protection Bureau warns that these loans often come with very high interest rates and could put borrowers at risk of default.

Because applying for a mortgage with bad credit could mean you only qualify for a loan that may be difficult to pay back, it might be smart to wait to buy a home until your credit scores improve. You may only have the option to take out an adjustable-rate mortgage — where the rate can change over time.