What a bad credit mortgage means
A mortgage is a loan secured by the home you buy, so the lender can foreclose if you stop paying. Having bad credit does not shut the door on homeownership, but it usually means fewer lenders willing to work with you, more paperwork, and closer scrutiny of your income and debts. Some lenders specialize in borrowers with past late payments, collections, or a bankruptcy on their credit report. Government-backed programs, discussed below, often have more flexible credit standards than conventional loans. Before you shop, pull your credit report and understand what is dragging your score down. Fixing errors or paying down revolving balances can improve the terms lenders offer. Whatever your credit history, ask every lender the same questions about APR, points, and fees so you can compare on equal footing, and remember that a lower credit score usually means a higher APR, which the cost example on this page can help you picture.
Your right to see the true cost
Under 15 U.S. Code 1638, a mortgage lender must disclose the finance charge expressed as an annual percentage rate. This is one of the most useful tools a borrower with bad credit has, because it lets you compare loans that look different on the surface, such as one with a lower rate but higher fees against one with a higher rate but fewer upfront costs. Ask for this disclosure early, before you commit to an application with any one lender, and compare it against the cost example on this page. If a lender is reluctant to give you a clear APR disclosure in writing, treat that as a warning sign. Shopping multiple lenders within a short window also limits the effect on your credit history, since scoring models generally treat rate-shopping inquiries for the same type of loan as a single event.
FHA loans and the 203(k) rehabilitation program
The Federal Housing Administration insures mortgages that private lenders make, which lets those lenders accept lower credit scores and smaller down payments than many conventional loans require. Within that system, HUD's 203(k) program lets homebuyers and homeowners finance repairs into an FHA-insured mortgage. There are two versions: a Limited option for smaller repair projects, and a Standard option for major rehabilitation that starts at a higher repair cost. Both let you roll the cost of fixing up a home into a single mortgage rather than taking out a separate loan for repairs. This can be useful if the property you can afford needs work, since it avoids juggling two loans and two sets of payments. Ask any FHA-approved lender whether your project qualifies for the Limited or Standard version, and get the repair-cost thresholds directly from the lender or from HUD, since program details can change.
Shopping tools and free counseling
The Consumer Financial Protection Bureau publishes a consumer tools hub on getting and maintaining a mortgage, including tools built for homebuyers and a way to find a HUD-approved housing counselor. A housing counselor can review your finances, help you understand what a lender is offering, and flag red flags in a loan estimate before you sign anything. This kind of counseling is typically free or low cost and does not require you to already have a lender picked out. Use these tools before you fill out any mortgage application, not after. They can help you figure out how much home you can actually afford to carry, given your other debts, rather than how much a lender says it will approve you for.
Risks and cheaper alternatives to weigh first
A mortgage is a long-term, secured debt, so a missed payment risks your home, not just your credit score. Before you sign anything, make sure you understand the full repayment period in the loan agreement, what happens if you miss a payment, and whether the rate can change over time. If your credit is bruised but you are not ready to buy, consider renting while you build a history of on-time payments, or look at a credit-builder loan or secured card to raise your score first. If you already have a mortgage and are struggling, contact your servicer and a housing counselor before you fall behind, since options like forbearance or a modified payment plan are usually easier to arrange early than after default.
How to move forward
Start by checking your credit report for errors, then compare APR disclosures from more than one lender, including FHA-approved lenders if your credit is thin or damaged. Use the CFPB's tools and a HUD-approved housing counselor to sanity check any offer. When you are ready, the request form on this site tells you what kind of credit check happens before you send it. BadCreditMD is not a lender or broker. A lending network partner shares requests with lenders. Lenders set their own rates and decide whether to lend.
Key facts
- APR disclosure requiredA mortgage lender must disclose the finance charge expressed as an annual percentage rate under the Truth in Lending Act.[1]
- FHA 203(k) programHUD's 203(k) program lets homebuyers and homeowners finance repairs into an FHA-insured mortgage: the Limited 203(k) covers up to 75,000 dollars of repairs, and the Standard 203(k) covers major rehabilitation costing at least 5,000 dollars.[2]
- Mortgage shoppingThe CFPB publishes a consumer tools hub on getting and maintaining a mortgage, including tools for homebuyers and how to find a HUD-approved housing counselor.[3]
Plan for loan payments
Use the loan payment calculator to explore monthly payments and total cost using your own illustrative figures.
Common questions
Can I get a mortgage with a low credit score
Yes, though your options narrow and the APR you are offered is likely to be higher. FHA-insured loans and other government-backed programs tend to have more flexible credit standards than conventional loans, so ask any lender whether you qualify for one of those programs before assuming a mortgage is out of reach.
What is the 203(k) program and who is it for
It is a HUD program that lets homebuyers and homeowners finance home repairs into an FHA-insured mortgage instead of taking out a separate loan for the work. It comes in a Limited version for smaller projects and a Standard version for major rehabilitation, so ask an FHA-approved lender which fits your situation.
Does shopping multiple mortgage lenders hurt my credit
Comparing APR disclosures from more than one lender is worth the effort. Scoring models generally treat mortgage-related inquiries made within a short window as a single event, so shopping around for the same type of loan is less costly to your score than spreading separate requests over a long stretch of time.
Where can I get free help understanding a mortgage offer
The Consumer Financial Protection Bureau's mortgage tools hub can point you to a HUD-approved housing counselor, who can review a loan estimate with you and flag anything unclear before you sign, at no cost tied to a lender relationship.
Sources
- Cornell Law School Legal Information Institute. 15 U.S. Code 1638 - Transaction disclosures.
- U.S. Department of Housing and Urban Development. 203(k) Rehabilitation Mortgage Insurance Program Types.
- Consumer Financial Protection Bureau. Mortgages.
Representative example
- Amount borrowed
- $1,000
- Annual percentage rate (APR)
- 29.99%
- Repayment
- 12 monthly payments
- Payment
- $97.48
- Finance charge
- $169.76
- Total of payments
- $1,169.76
Example: a $1,000 installment loan at 29.99% APR repaid in 12 monthly payments of $97.48 costs $1,169.76 in total, including a finance charge of $169.76. Illustration only; your lender will disclose your actual APR, payment schedule and total cost before you accept a loan.