Best Mortgage Lenders for Bad Credit of 2022

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 of 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 not 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.