Best Mortgage Lenders for Bad Credit

New American Funding offers the best mortgage choices for low-credit borrowers

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Searching for the best mortgage lenders for bad credit may be challenging for borrowers. Lenders tend to have strict qualifying requirements for conventional mortgage loans. Even if you end up qualifying for one, you could find your rate is not as competitive as if you were to have a higher score. Government-backed loans are a popular choice since these types of loans are not as stringent in their requirements. Borrowers may be able to qualify with credit scores as low as 500.  

Getting a mortgage for bad credit is possible, but you may end up having to make a larger down payment and pay mortgage insurance and a higher interest rate. The best mortgage lenders for bad credit won’t have such strict stipulations, such as offering low down payment options, and will have a variety of loan choices.

Best Mortgage Lenders for Bad Credit of 2021

Best Overall : New American Funding


New American Funding

New American Funding

  • Minimum Credit Score: 620
  • Minimum Down Payment: 3%
  • Online Application: Yes
  • Types of mortgages: Fixed-rate, variable-rate, FHA, VA, conventional, and I CAN loans
Why We Chose It

New American Funding offers a wide range of loan options, evaluates borrowers based on manual underwriting, and provides guidance for down payment assistance programs.

Pros & Cons
Pros
  • Available in 32 states

  • Uses manual underwriting

  • Online mortgage application process

Cons
  • Minimum score is higher than some competitors

  • Must receive quote from lending officer

  • No home equity loans or HELOCs

Overview

New American Funding wins our top spot for the best mortgage lender for bad credit, in part because it offers some of the best rates we’ve seen and a manual underwriting process. What this means is that your creditworthiness may be based on other factors such as employment history and other non-traditional credit sources. The lender has brick and mortar locations in 32 states—residents in Hawaii and New York, for instance, will need to look elsewhere. For those who live in areas where New American Funding is available, borrowers can choose from FHA, VA, and conventional loans with customizable terms.

Applicant Requirements

The lender requires a 620 credit score at a minimum for its applicants (could be lower for government-backed loans). Other requirements that will affect a borrower’s eligibility include employment history, amount of assets held, and type of property. 

Application Process

Applicants can request to receive a quote by filling out an initial application online. Information includes name, address, purchase price, and intended down payment. Once complete, a New American Funding loan officer will be in touch with a quote. If you want to proceed, the remainder of the application process will be completed online, where you can upload additional documentation as needed.

Best Traditional Bank : Wells Fargo


Wells Fargo

Wells Fargo 

  • Minimum Credit Score: 620
  • Minimum Down Payment: As low as 3% for conventional loans
  • Online Application: Yes
  • Types of mortgages: Fixed-rate, variable-rate, VA, and jumbo loans
Why We Chose It

We chose Wells Fargo as the best traditional bank because of its competitive rates, ease of interaction with the lender, and potential relationship discounts. 

Pros & Cons
Pros
  • Variety of mortgage types available

  • Nationwide availability

  • Offers online application process

Cons
  • Not much information online about FHA and USDA loan options

Overview

Wells Fargo stands out as the top traditional bank for borrowers with bad credit because of potential relationship discounts and transparency in rates. Before filling out an application, you can easily compare different loan types and get an estimate of interest rates based on your credit score range. Available nationwide, Wells Fargo offers applicants the option of completing the mortgage application process online, though you can also receive a quote over the phone. 

Applicant Requirements

Wells Fargo applicants will generally need a minimum 620 credit score to qualify for a loan and down payments as low as 3%. However, government-backed loans may have lower credit score and down payment requirements. 

Application Process

Wells Fargo offers a fully online application process. Applicants can fill out a form to receive a quote, then sign into yourLoanTracker, an online portal, so that a loan advisor can receive additional documentation. The portal also allows you to e-sign documents and track application status.

Best Online Option : SoFi


SoFi

SoFi

  • Minimum Credit Score: 620
  • Minimum Down Payment: 5% 
  • Online Application: Yes
  • Types of mortgages: 10- to 30-year fixed-rate conventional loans
Why We Chose It

SoFi earns top marks for a seamless application process and up to $500 in exclusive member discounts.

Pros & Cons
Pros
  • Member discounts available

  • Available in most states and Washington, D.C.

  • Loans available for investment properties

Cons
  • Need to create online account to see rates

  • No FHA or VA loans

Overview

SoFi is the best online lender not only because of its simple online application process, but members can receive up to a $500 discount on their mortgage. Becoming a member simply means you’re a SoFi customer—other benefits include additional discounts on other SoFi products, career coaching, and estate planning assistance. The lender operates in most states, plus Washington, D.C., except for Hawaii, Missouri, New Mexico, New York, and West Virginia. A potential downside is that you will need to create an online account to receive a quote (some lenders don’t require this step), which could mean you’ll be subject to marketing emails. Plus, borrowers who want government-backed loans won’t find it here with this lender.

Applicant Requirements

SoFi doesn’t explicitly state minimum credit and income requirements on their website, but most conventional loans will require a 620 minimum credit score. Though you may be able to put down as little as 5% down on a home, those with lower credit scores may be required to put down more. 

Application Process

Applicants can receive a quote and apply for a SoFi mortgage completely online. To start, you’ll need to create an online account, then provide required information to receive an initial quote. Afterwards, supporting documentation and communication with the loan officer can be conducted online.

Best for FHA Mortgages : PNC Bank


PNC Bank logo
  • Minimum Credit Score: 580
  • Minimum Down Payment: 3.5%
  • Online Application: No
  • Types of mortgages: FHA, fixed-rate, ARM, Jumbo, VA loans  
Why We Chose It

In addition to competitive rates, PNC Bank offers lots of online tools and resources to help FHA loan borrowers with loan and down payment assistance. 

Pros & Cons
Pros
  • Specialized loan programs offer low down payments

  • Competitive FHA loan rates

  • Available nationwide

Cons
  • Rates may not be available online in all states

  • Application not fully available online

  • No brick-and-mortar branches in all states

Overview

What we like about PNC Bank is that not only do their FHA loans have competitive rates, but the bank also offers closing cost assistance. For instance, qualifying borrowers may receive up to $1,500 toward closing costs or for the down payment. Eligible borrowers can also look into the PNC Community loan, which doesn't have private mortgage insurance and maintains a low down payment of as little as 3%. For instance, those who aren’t first-time homebuyers who can’t qualify for a conventional or FHA loan can look into this mortgage program. 

Though PNC mortgages are available nationwide, not all applicants can look up rates or complete the application process online. In some cases, you may have to contact a PNC loan officer for rates and access to their Home Insight Tracker to submit documents.

Applicant Requirements

There aren’t clear guidelines as to what the minimum credit score or income requirements are. However, in many cases, applicants may be able to qualify with a 580 credit score for FHA loans or 620 for conventional loans. It’s best to contact a loan officer at PNC to see what options are available based on your financial situation. 

Application Process

Applicants can fill out an online application form to receive a customized quote based on their creditworthiness—a loan officer will contact you to finalize the quote. Applicants can also call 1-855-744-2668 or visit a local branch to speak with a loan officer.

Best for VA Mortgages : Navy Federal


Navy Federal Credit Union logo

Navy Federal Credit Union logo

  • Minimum Credit Score: None for VA loans; 620 for others
  • Minimum Down Payment: None for some loan options; 5% for conventional loans
  • Online Application: Yes
  • Types of mortgages: VA, conventional, ARM
Why We Chose It

As a credit union specializing in helping members of the military, Navy Federal offers the best rates for VA loans and a fast pre-approval process. 

Pros & Cons
Pros
  • Ability to relock a lower rate

  • Offers a rate-match guarantee

  • Earn cash back with approved realtors

Cons
  • Membership required

Overview

Navy Federal is an excellent choice for VA loans because of its competitive rates and services to help close on loans seamlessly. The lender claims to have a fast pre-approval process and promises a rate-match guarantee. That means if you find a better rate elsewhere, Navy Federal will try to match it or give you $1,000.  For service members who've already used their VA loan benefit, Navy Federal offers the Military Choice Loan with competitive rates and no down payment requirements. Plus, the seller is also allowed to contribute up to 6% of the home's value toward closing costs. 

Though you do need to be a credit union member to take out a loan, doing so can get you VA loans with interest rates of around 2.4%. Navy Federal also has a real estate agent service where you can earn cash back and Navy Federal Title services to help you close on your loan seamlessly. 

Applicant Requirements

There are no minimum credit score requirements for VA loans and no clear guidelines on credit scores on other types of mortgages on their website. However, conventional loans typically require a minimum score of 620. The lender will also consider other factors such as your debt-to-income ratio and the amount of assets you have on hand. 

Application Process

Applicants will need to become members in order to apply. To become one, you'll need to be a qualifying servicemember in the armed forces, or the immediate family member of one. Afterwards, sign into your account online to fill out an application form, and a loan officer will reach out within six to 10 days with the next steps.

Best for 15-Year Mortgages : Better.com


Better.com

Better.com

  • Minimum Credit Score: 620
  • Minimum Down Payment: 3%
  • Online Application: Yes
  • Types of mortgages: FHA, Jumbo, conventional fixed-rate, ARM loans
Why We Chose It

Better.com doesn’t charge any lender fees and offers one of the lowest prices found for 15-year fixed mortgage rates. 

Pros & Cons
Pros
  • Instant loan estimates

  • No lender fees

  • Intuitive online application process

Cons
  • No VA or USDA loans

  • Not available nationwide

Overview

Better.com, in addition to having competitive rates for 15-year mortgages, offers a fast online application process. The lender claims it’ll provide you with a quote within seconds, and a loan estimate within three minutes. That way, homebuyers can make a decision quickly and start using a pre-approval letter to put down offers on a home. Plus, the rest of the online application is simple to navigate—you’ll be clearly prompted to provide additional documentation for underwriting purposes.

Founded in 2016, Better.com has funded over $25 billion in loans, partly due to its low rates (currently, it averages around 2.4% even if your FICO score is low). In addition to competitive rates, Better.com offers their Better Price Guarantee, where the lender matches a competing lender's offer by at least an extra $100 or else you'll be paid $100 in cash.  However, this lender is only available in 46 states and Washington, D.C. 

Applicant Requirements

Better.com requires a minimum 620 credit score for their conventional mortgages—FHA loans may have lower requirements. There aren’t any clear income eligibility requirements on its website. 

Application Process

Since Better.com is an online lender, the entire application process is done completely online. Once you enter details such as the property you want to purchase, down payment amount, and your contact information, you’ll be given an online quote and emailed a loan estimate. The remainder of the application process has you uploading the required documents before closing.

Best for 30-Year Mortgages : CitiMortgage


Citi Logo

Citi

  • Minimum Credit Score: 620
  • Minimum Down Payment: 3%
  • Online Application: Yes
  • Types of mortgages: FHA, VA, conventional, and jumbo loans
Why We Chose It

CitiMortgage offers a conventional loan geared toward those with low income scores with no mortgage insurance requirements and highly competitive rates.

Pros & Cons
Pros
  • Available nationwide

  • Flexible credit requirements on some mortgages

  • Closing cost assistance available

Cons
  • Need to complete quote offline

  • No USDA loans

Overview

A division of Citigroup, CitiMortgage offers one of the lowest rates for 30-year conventional loans. What’s more, the lender also offers a mortgage specifically for those with low credit scores called the HomeRun Mortgage. Borrowers only need a 3% minimum down payment or for two-unit homes, 5% down. Other benefits include no mortgage insurance requirement, rates comparable to their low conventional loans, and less stringent credit guidelines. Plus, qualifying Citibank customers can also qualify for relationship pricing, lowering their interest rate even further.

Depending on your financial situation, CitiMortgage also offers lender paid closing cost assistance of up to $5,000. Though you can start the application process online, for some loans you’ll need to call to receive a quote—you may be able to submit additional documentation online. 

Applicant Requirements

The exact credit score and income requirements will depend on the type of mortgage you take out. In most cases, conventional loans require a 620 minimum credit score, whereas FHA and CitiMortgage’s HomeRun mortgage may be lower. 

Application Process

Most mortgage types have an online application form where applicants can request to receive a quote. A loan offer will then be in touch to proceed with the remainder of the application process—you can submit documents through your online account.

Best for Cosigners : Rocket Mortgage


Rocket Mortgage

Rocket Mortgage

  • Minimum Credit Score: 580
  • Minimum Down Payment: 3%
  • Online Application: Yes
  • Types of mortgages: Conventional, FHA, VA, ARM, and jumbo loans
Why We Chose It

Rocket Mortgage allows cosigners, and with the ability to retrieve and upload documents quickly, it offers a fairly straightforward experience for all applicants. Instead of coordinating with your cosigner, they can upload the required documents themselves. 

Pros & Cons
Pros
  • Verified approval letter available

  • Online data and document retrieval

  • Quotes available within minutes

Cons
  • Credit check required for rate quote

  • No USDA loan

Overview

Rocket Mortgage’s completely online process, with the ability to upload documents separately, makes it a great choice for cosigners. Plus, the added benefit is that quotes are available within minutes—hopefully, your cosigner’s higher credit score allows you to qualify for better rates. The lender also has an app, rare among competitors. Users can start the application process there, as well as upload documents and manage monthly payments. However, a credit check is required to get an individualized quote, so you and your cosigner’s score may be affected, however minor that may be.

Applicant Requirements

FHA loans have a 580 minimum credit score and there isn’t any indication on Rocket Mortgage’s website as to what it is for conventional loans.

Application Process

You can go through the entire application process online. Either head to Rocket Mortgage’s website or download their app (available on both Android and iOS) to fill out the application form. From there, either log into the app or your account online to submit documents and other required information.

Final Verdict

Choosing the best bad credit mortgage provider means looking at what’s available in your area, the type of loan you’re looking for, and comparing rates. Lenders like Better.com offer features like rate guarantees, whereas others like Navy Federal allow applicants to relock the rate if a lower one becomes available. 

Overall, New American Funding provides the best variety of mortgage types alongside competitive rates. Plus, the lender also uses manual underwriting, helping those with lower scores or non-traditional sources of credit increase their chances of approval. 

Compare the Best Mortgage Lenders for Bad Credit

Company Minimum Down Payment  Minimum Credit Score  Application Process  Number of States Available 
New American Funding
Best Overall
3% 620 Partially online Nationwide
Wells Fargo
Best Traditional Bank
3%  620  Partially online or in person  Nationwide 
SoFi
Best Online Option 
5%  620  Completely online  45 states and Washington, D.C.
PNC Bank
Best for FHA Mortgages 
3.5%  580  Partially online  Nationwide 
Navy Federal
Best for VA Mortgages 
5%  620 Partially online  Nationwide 
Better.com
Best for 15-Year Mortgages 
3%  620  Completely online  46 states and Washington, D.C. 
CitiMortgage
Best for 30-Year Mortgages 
3%  620  Partially online or in person  Nationwide 
Rocket Mortgage
Best for Cosigners 
3%  580  Completely online  Nationwide 

Guide to Choosing the Best Mortgage Lender for Bad Credit

Should You Get a Mortgage With Bad Credit?

Purchasing a home with bad credit could mean that you’ll pay more in interest. Even if you get better rates with government-backed mortgages, you may be required to pay mortgage insurance and additional closing fees, driving up the overall cost of your mortgage.

Even with these additional costs, it is possible to find competitive rates and an affordable mortgage. The key to doing so is to shop with multiple lenders to see what you may qualify for. Plus, look for lenders that are licensed to provide government-backed loans and explore all possible options. 

Improve Your Odds of Qualifying for a Good Mortgage Rate

Borrowers who have low credit scores can still qualify for better mortgage rates. Here are a few ways you can increase your chances of doing so:

  • Take out a government-backed mortgage: These home loans tend to offer lower rates because they’re guaranteed by government agencies. Since they’re designed to help qualifying borrowers accelerate their path to homeownership, there are also less stringent requirements. 
  • Increase your credit score: One of the best ways to increase your credit score is to check your credit report to ensure there are no false remarks on it. If there are, you can dispute this with your creditor. While you’re at it, see if you can talk to your creditors about removing late payments from your credit report. This typically works if you've been making on-time payments for a while. Other steps to take include continuing to make on-time payments and getting all positive payments (even rent and utilities) included in your credit report.  
  • Lower your DTI: The lower your debt-to-income ratio, the more likely you are able to qualify for a loan. That’s because lenders use this to gauge whether you can meet your debt obligations comfortably. You need to have it lower than 43% considering that even FHA loans have this requirement. To lower your DTI, work on paying down your current debt or increase your monthly income. 
  • Increase your down payment amount: Government-backed mortgages tend to require no-to-low down payments, but that’s not always the case. If you have a particularly low score—say, below 580—you may be required to put a higher percentage down. For conventional loans, talk to your lender to see whether you can get a more competitive rate if you have a larger down payment.

Choose a Home Mortgage Lender for Bad Credit

When choosing a mortgage lender, borrowers with bad credit will do best by shopping around. Here are some factors to consider:

  • Origination fees: Lenders may try to entice borrowers by advertising low or no origination (or application) fees. However, lenders may make up for these fees, for instance, by having higher interest rates.
  • Manual underwriting: Lenders who specialize in mortgages for borrowers with poor credit tend to look at other factors such as employment history, or review your paperwork manually. When shopping around, ask the lender how they review applicants for their creditworthiness.
  • Compare rates: Though interest rates for those with bad credit may not be as competitive as those with excellent scores, there are some deals to be had. When reviewing quotes from multiple lenders, compare the APRs, as this rate considers both the interest rate and lender fees.
  • Down payment assistance: Some lenders offer programs such as down payment assistance, where borrowers can take advantage of state and local programs. 

Guide to Mortgage Rates for Bad Credit

What Is a Mortgage Rate?

A mortgage rate, otherwise known as interest, is what a lender charges a borrower to take out a home loan. This interest rate can either be fixed or variable. A fixed rate means the mortgage rate will remain constant through the entire loan term. A variable rate will fluctuate throughout the term based on a benchmark rate. Lenders typically reassess this rate at a predetermined time period stated in your loan document. 

The mortgage rate is a major consideration for homebuyers when comparing home loans because it affects how much they’ll pay, both in terms of monthly payments and the amount of interest over the duration of the mortgage. 

How Are Mortgage Rates Set?

Mortgage rates are determined based on economic conditions and individual factors. Lenders look at factors such as the prime rate to calculate their rates. The prime rate usually follows the Federal Reserve’s federal funds rate. 

Lenders also look at market trends from the 10-year Treasury bond yield. Mortgage rates usually go down if the yield goes down, and vice versa. Borrowers can use the 10-year Treasury yield to gauge mortgage rates because most home loans tend to be paid off or refinanced after 10 years. 

Individual factors that influence how lenders set mortgage rates include your credit score and the amount of debt you have. Lenders look at credit scores to determine how risky a borrower may be—the lower the score, the higher the risk, reflected in a higher rate. Lenders also look at what’s called a debt-to-income ratio, or DTI, to determine whether a borrower can afford mortgage payments. This ratio looks at the percentage of debt payments you have compared to your gross income. Most lenders don’t want a DTI higher than 43%.

What Is a Good Mortgage Rate for Bad Credit?

A good mortgage rate for borrowers with bad credit will depend on individual factors such as income, debts, down payment amount, and credit history. Lenders tend to advertise the lowest possible rates offered to encourage borrowers to contact them, so your quoted rate may be higher than what you see advertised. 

Do Different Mortgage Types Have Different Rates?

Different types of mortgages will have different rates. Fixed rates tend to be higher than adjustable-rate mortgages (ARM). However, after a fixed amount of time, interest rates for ARMs will fluctuate, in either direction, depending on current market conditions. 

Are Interest Rate and APR the Same?

Interest rates and APRs are not the same. The interest rate is the base cost of what you’ll pay to borrow money. An annual percentage rate, or APR, includes fees in addition to the interest rate associated with your mortgage. Fees for home loans can include application fees, origination fees, broker fees, mortgage points, and lender credits. 

The APR tends to be higher than the interest rate because of these additional fees. If you get quoted an APR that’s close to the interest rate, that means the lender isn’t charging you as many fees compared to lenders who have a higher APR.

Frequently Asked Questions

What Is a Mortgage for Bad Credit?

Mortgages for bad credit means that lenders or certain lending programs offer more affordable financing options, even if you have a low credit score. There are lenders who offer conventional loans to borrowers with bad credit, but you may find that these come at the cost of higher rates, larger fees, and higher down payment requirements.

All of the above reasons are why many borrowers with bad credit opt for government-backed loans. These types of mortgages have less stringent requirements and lower down payment amounts compared to many conventional mortgages. 

The three main government-backed mortgages for those with bad credit include FHA loans, VA loans, and USDA loans. Each is backed by different government agencies and has different eligibility requirements; some are more strict than others. For instance, VA loans are only for those who are veterans or active-duty members (including their spouses), whereas FHA loans are for anyone who has at least a 500 credit score and is purchasing the property as their primary residence. 

What Is a Good Down Payment for a Mortgage for Bad Credit?

A good down payment amount will depend on the type of loan you qualify for. As an example, VA loans (if you meet the eligibility criteria) don’t have any down payment requirements—you can put as little as 0% down. Other loans like FHA loans require at least 3.5%. Some conventional loans for first-time buyers like Fannie Mae’s ReadyBuyer program only require 3% down.

Ultimately your required down payment will depend on factors such as your credit history, assets, income, and liabilities.  

How Big a Mortgage Can I Afford?

When calculating how big of a mortgage you can afford, look at your front-end debt-to-income ratio. This number, expressed as a percentage, looks at the amount of your gross income going toward housing costs. It’s usually calculated by taking all your housing expenses such as mortgage payments and mortgage insurance and dividing it by your gross income.

Lenders tend to qualify loans that have a front-end DTI of no more than 28%. That means if your household income is $60,000 per year, you should pay more than $16,800 per year, or $1,400 per month. This amount should include your mortgage payments and expenses such as homeowners insurance and property taxes. The lower your front-end DTI, the more you should be able to borrow.

Lenders also look at your back-end DTI, which looks at your gross income in comparison to all your monthly debt obligations (including your mortgage). You can calculate this number by taking all your debt payments like loans and credit cards and dividing it by your gross income. Typically, lenders don’t want borrowers to have a back-end DTI of more than 43%, though there may be some exceptions for government-backed mortgages such as FHA or VA loans. 

Methodology

We researched over 25 mortgage lenders when determining the best mortgages for borrowers with poor credit. We evaluated factors such as minimum down payment requirements, transparency in rates offered, nationwide availability, and range of loan options. For FHA and VA loans, we also considered credit unions even though many have restrictive membership requirements. However, all credit unions mentioned above allow veterans and their family members to join.