Best Mortgage Lenders for Poor Credit

Benzinga readers often choose Angel Oak Mortgage Solutions as the best mortgage lender for poor credit.

A few missed credit card payments or a new credit score doesn’t need to mean waiting years to buy a home. Though buying a home with bad credit is a bit more difficult than buying a home with a score in the 800s, there are plenty of mortgage lenders willing to work with applicants who have lower scores. 

Today, we’ll take a look at how to buy a home when you have bad credit. 

Quick Look: Best Mortgage Lenders for Bad Credit

• Best for Bank Statement Home Loans: Angel Oak Mortgage Solutions
• Best for a Variety of Options: New American Funding

Best Mortgage Lenders for Poor Credit

Here is a compiled list of some of the best mortgage lenders that cater to individuals with poor credit histories.

1. Best for Bank Statement Home Loans: Angel Oak Mortgage Solutions

Angel Oak Mortgage Solutions is a full-service mortgage lender offering traditional and portfolio Non-QM mortgage loans. The mortgage company is licensed in 45 states and offers competitive rates and quick closing times. 

Angel Oak Mortgage Solutions offers a wide range of mortgage solutions for various needs. Whether you are looking to purchase a home, cash-out on your current property, or refinance at a different rate, it has options for you.

With loan amounts available up to $3.5 million, it can support you in financing properties of different values. It caters to primary residences, second homes and investment properties and accommodate various types of properties such as single-family homes, townhomes and condos.

Why We Love It: Angel Oak is known for its flexible underwriting process, which considers alternative income documentation and looks beyond just credit scores. Angel Oak also provides manual underwriting, allowing for a more personalized assessment of each borrower's financial situation.

2. Best for a Variety of Options: New American Funding

New American Funding is a good choice for self-employed borrowers. It allows you to use bank statements to verify your income instead of trying to qualify with tax returns, W-2s or pay stubs, which you might not have with a fluctuating or lump-sum income.

New American Funding is also an excellent lender for first-time home buyers. You can opt for an FHA, USDA or VA loan. New American Funding also has educational resources to help first-timers understand the mortgage process. 

New American Funding follows a standard closing process, meaning the time to close will depend on the client and loan type. You can choose to start with a prequalification or preapproval. Prequalification doesn’t involve verifying your income. Preapproval means underwriters have reviewed your income and assets and are reasonably confident you will qualify for a home loan.

Why We Love It: New American Funding offers the "I CAN" mortgage program that allows for down payments as low as 5% without requiring private mortgage insurance. The lender also offers credit education resources and personalized guidance to help you improve your financial standing.

If you have a lower credit score, you’re statistically more likely to miss a mortgage payment, borrow more money than you can afford to repay or fall into foreclosure. But what exactly is “poor credit” — and what credit score do you really need to buy a home?

Most mortgage lenders use the FICO credit scoring model to qualify mortgage applicants. Below, you can view a chart of FICO credit score ranges and how credit companies see applicants with these scores, according to Experian.

How to Get a Mortgage with Bad Credit

If you have poor credit and need to apply for a loan without raising your score, there are a few ways to get approved.

Apply for an FHA Loan

An FHA loan is a type of government-backed mortgage loan for buyers who have a lower credit score. Because FHA loans have insurance from the federal government, they’re a less risky option for lenders. This means that they can extend FHA loans to more buyers. An FHA loan can allow you to purchase a home with a credit score as low as 580 points and a down payment of just 3.5%.

Some select lenders may even allow you to buy a home using an FHA loan with a score as low as 500 points so long as you have at least 10% to put down on your home. Though this option isn’t available through every lender, local lenders might be more willing to work with you if you have a larger down payment.

Bring a Larger Down Payment

The larger your down payment, the less money you’ll need to borrow from your mortgage lender. Some lenders might be willing to loosen credit requirements if you bring a larger down payment to the closing table because this lowers your monthly payment and makes it less likely that you’ll default. Aim for a down payment of 20% or higher if you have poor credit and want to buy a home.

Explain Your Circumstances

From medical debt to a sudden job loss that you didn’t anticipate, there are plenty of reasons why you might fall behind on your bills and see a dip in your credit score. You might be surprised at just how understanding mortgage lenders can be when you explain why exactly you have a poor credit history.

A documented history of why your credit score is low may be able to show mortgage lenders that your low score is simply a temporary condition and not a symptom of your poor financial management skills. 

How to Choose the Best Lenders for Poor Credit

When facing financial challenges with a low credit score, finding the right lender can seem daunting. However, by understanding what to look for and how to evaluate your options, you can make an informed decision that suits your needs. These are the key factors to consider when selecting lenders who specialize in working with borrowers who have poor credit.

• Check eligibility criteria: Look for lenders who specialize in poor credit loans and have more lenient requirements.
• Compare interest rates: Poor credit loans often have higher rates, but shop around to find the most competitive offers.
• Review fees: Examine all associated costs, including origination fees, late payment fees, and prepayment penalties.
• Consider loan terms: Look for flexible repayment periods that fit your financial situation.
• Read customer reviews: Research lender reputations through independent review sites and consumer feedback.
• Look for credit-building features: Some lenders offer tools to help improve your credit score over time.
• Examine pre-qualification options: Seek lenders who offer soft credit checks to assess your eligibility without impacting your credit score.
• Check for co-signer options: Some lenders allow co-signers, which can help you secure better terms if you have a willing participant.

Ways to Improve Your Credit

Though it is possible to get a mortgage loan with poor credit, even the best mortgage company will force you to pay a higher interest rate than comparable buyers with great credit. Sometimes it’s better to take a few months to focus on raising your credit score before you apply for a mortgage loan. If you aren’t sure where to begin, use these tips to boost your credit score over time.

Review Your Credit Report

Did you know that about 20% of Americans have some kind of mistake on their credit report? These mistakes can artificially lower your score — but you can have them removed.

Request all 3 of your credit reports once every 12 months. Review each of your credit reports and look for mistakes. Some common mistakes include listing information from someone with the same name as you, misspellings of your name or address and listing loan payments as “late” that were actually paid on time. If you spot a mistake, contact the credit bureau. The bureau must review its documentation and prove that the information listed is accurate. If it cannot substantiate the listing, the bureau is legally required to remove it.

Apply for a Secured Credit Card

If you don’t have a credit score or your score is very low, you might have a very tough time getting approved for any type of credit. This can quickly create a Catch-22 situation. You need some kind of credit to build your credit score, but you can’t get approved for credit without a good score.

If this is the situation you’re in, consider applying for a secured credit card. A secured credit card is a unique type of credit card that’s available even if you have no score or very poor credit. When you open a secured credit card, your lender will request a down payment that then becomes your line of available credit. For example, if you put $500 down when you open your card, your lender will provide you with a secured card with a $500 line of credit. From here, the secured card works identically to a standard credit card. You make purchases using the card and pay off your balance each month. Your lender simply keeps your deposit if you fail to make your payments.

As long as you make your payments on time, a secured card will raise your credit score over time. If you decide to close your card, your lender will refund your deposit minus what you owe. A secured card can offer you a no-hassle way to build credit if you’re still working to raise your score.

Limit Your Credit Usage

If you use too much of your total available credit each month, lenders will see you as a riskier candidate for any type of loan. Regularly maxing out your credit indicates that you might rely on credit cards to pay all of your bills or that you have little money in savings. This lowers your score.

If you already have a credit card, you can raise your score by limiting your credit usage. Ideally, you should use less than 10% of your total available credit each month. If this isn’t currently possible, aim for less than 30% usage and gradually work your way down each month.

Make Your Bills on Time

Your loan and credit card payment history makes up about 35% of your total FICO credit score. Though it might sound obvious, the easiest and fastest way to raise your score is to build a history of timely payments.

If you have trouble remembering when all of your bills are due, contact your credit card company and request autopay. Most autopay features automatically deduct your minimum payment on the day it's due. This prevents you from accidentally lowering your score by forgetting to make your minimum payments.

Tackle Your Poor Credit

The best way to tackle poor credit is to face it head-on. If you’ve been avoiding looking at your credit score after a few missed credit card payments or a lapse on a loan, it’s time to sit down and assess the damage. Once you know what your score is, create a plan of action to lower your spending, begin diverting extra money toward debt and limit the amount of credit you use each month. Even if you aren’t planning to buy a home in the next few years, taking steps to curb your credit now will open up lower interest rates and more opportunities in the future. 

Frequently Asked Questions