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Best mortgage lenders for bad credit of November 2024
Having a serious setback with your credit can be frustrating. You may think you'll never be financially qualified to buy a house, but that's not necessarily the case.
Mortgage lenders today have many lending tools they can deploy for households with poor credit histories. That includes home loans specially designed for borrowers with low credit scores. You'll want to know your options. Yahoo Finance has vetted over three dozen mortgage lenders and selected the top lenders for borrowers with bad credit for November 2024.
In this article:
Best mortgage lender for bad credit overall
Flagstar Bank
The Yahoo view: Flagstar is a long-time FHA lender, which is a go-to mortgage solution for borrowers with modest incomes and lower credit scores.
Stars: 3.50
Read our full Flagstar Bank mortgage review
Key benefits
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Flagstar Bank mortgage offers all three major government loan programs: FHA, USDA, and VA.
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Borrowers without Social Security numbers may qualify for Flagstar's Individual Tax Identification loan program.
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A handy tool allows you to put in your credit score range for a more accurate mortgage rate estimate.
Need to know
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While Flagstar originates home loans in all 50 states, it only has branch locations in nine (Arizona, California, Connecticut, Florida, Michigan, New Jersey, New York, Ohio, and Wisconsin).
Dig deeper: Best FHA lenders
Best mortgage lender for alternative credit
New American Funding
The Yahoo view: New American Funding offers the option to get a mortgage with alternative credit data. That gives households with traditional credit challenges more opportunities to finance a home.
Stars: 3.20 stars
Read our full New American Funding mortgage review
Key benefits
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New American Funding offers non-qualified mortgages. That allows flexibility in gaining approval even if you've had a bankruptcy or foreclosure. And alternative credit may be an option if you have a limited credit history or irregular income. It can include a track record of utilities and rent payments and the use of bank statements to show creditworthiness.
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A borrower can qualify for an FHA loan through New American Funding with a credit score as low as 500 if you have savings for a down payment of up to 10%. With a down payment of 3.5%, the credit score minimum is likely to be 580 or better.
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NAF allows for a debt-to-income ratio of up to 57% on an FHA loan, while many lenders require a DTI ratio of 43% or less for FHA mortgages. Certain limitations apply.
Need to know
FHA mortgage rates on the NAF website are misleading. On the day we checked, rates were reduced by three mortgage discount points, a 20% down payment, and a 740 FICO score. It's best to ask for an interest rate estimate more tailored to your financial situation.
Read more: 9 options for refinancing your mortgage with bad credit
Best bad credit mortgage lender for online resources
Cardinal Financial
The Yahoo view: If you are struggling to determine how your bad credit impacts your ability to own a home, Cardinal has deep online resources to guide you through the process.
Stars: 3.20
Read our full Cardinal Financial mortgage review
Key benefits
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Cardinal Financial earns Yahoo Finance's 5-star rating in our Online Features category for a vast assortment of educational articles, calculators, and topic guides.
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Offers down payment and closing costs assistance programs for low- and moderate-income households in all 50 states.
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A Rate Protect plan lets you lock your FHA mortgage rate for up to 90 days.
Need to know
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Total loan costs were high in comparison to other lenders' median fees for mortgages originated in 2023.
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No sample mortgage rates are available online. You will have to contact a loan rep for a rate estimate.
Best mortgage lender for refinancing with bad credit
Rocket Mortgage
The Yahoo view: Rocket Mortgage is best known for its online process, but it is also home to a wide range of loans — and of particular interest to refinancers: a generally lower interest rate.
Stars: 3.06
Read our full Rocket Mortgage review
Key benefits
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If you are shopping for a lower interest rate to refinance a home loan, you'll want to know that, compared to competitors, Rocket offered lower-than-median interest rates for loans made in 2023.
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If you have a credit history issue, Rocket Mortgage may qualify you with a credit score of better than 580 and a debt-to-income ratio of less than 57%.
Need to know
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Advertised mortgage rates come with stiff qualifying standards. Completing a profile form and agreeing to be contacted will give you a better idea of the interest rate you might qualify for.
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Getting a loan is not a completely online process. You'll still need to contact a rep to wrap up the details.
Read more: 9 options for refinancing your mortgage with bad credit
Best mortgage lender for bad credit: Customer service
Fairway Independent Mortgage
The Yahoo view: Fairway Independent Mortgage leads the industry in customer service and has lucrative homebuyer assistance programs.
Stars: 2.70
Read our full Fairway Independent Mortgage review
Key benefits
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Ranks No. 1 in the 2023 J.D. Power Mortgage Origination Satisfaction Survey.
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Fairway offers a Community Access program with first-time home buyer grants of up to $7,000 for borrowers in eligible metro locations.
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USDA loans offer no down payments and lower credit score requirements for buyers in rural areas and suburbs. They are especially suited for low-to-moderate-income households.
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Fairway works with 91 state housing programs nationally.
Need to know
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Fairway does not finance manufactured homes.
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The Consumer Financial Protection Bureau and the Department of Justice have accused Fairway Independent Mortgage of illegal mortgage lending discrimination — namely redlining — against majority-Black neighborhoods in the Birmingham, Ala., area. A proposed settlement orders Fairway to pay a $1.9 penalty and requires the lender to provide $7 million for a loan subsidy program and an additional $1 million for outreach and education.
Tips for comparing bad credit home lenders
The best mortgage lenders for bad credit borrowers will:
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Work with state housing assistance programs.
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Offer grants to apply to the down payment and closing costs.
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Help you understand mortgage terms and the loan process.
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Guide you through the completion of a loan application.
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Offer alternative credit qualification that considers payment histories of rent and utilities.
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Explain how long the loan approval process takes and when you can expect to close the loan.
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Offer a full range of government home loans and explain the benefits and drawbacks of each.
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Understand and encourage you to shop multiple lenders.
Yahoo Finance tip: Government loans may require a minimum credit score to buy a house; however, lenders often establish their own qualification standards. Called "overlays," these added-on eligibility factors can include a higher minimum credit score. Interest rates also vary among lenders according to their underwriting standards. Take the time to compare multiple loan offers from different lenders.
What is the best home loan for bad credit?
For most Americans of modest means, the best loan program is a mortgage insured by the FHA. With easier credit hurdles and built-in low down payments, FHA loans have helped millions of borrowers with credit issues buy a home. You only need a 580 credit score with a 3.5% down payment or 500 score with 10% down.
Learn more: What is an FHA loan?
Other types of mortgages offered by top-rated lenders for bad credit
In addition to FHA loans, the best lenders for bad credit borrowers will also offer two other popular loan types.
VA loans
If you have a military connection, you should look into a VA mortgage. Backed by the Department of Veterans Affairs, this type of loan usually requires no down payment and has flexible credit qualifications.
Read more: How a VA loan works
USDA loans
For loans in rural and suburban areas, USDA loans can be a good choice for aspiring homeowners with bad credit. USDA loans are aimed at low- and moderate-income households and have lenient credit score minimums.
Learn more: How do USDA loans work?
How to refinance a loan if you have bad credit
When mortgage rates move lower, you may be interested in refinancing your mortgage to swap your old home loan with a newer, more affordable mortgage.
Streamline Refinance
For borrowers with bad credit scores, the FHA Streamline Refinance may be their best option. For these loans, the FHA doesn't require lenders to consider credit score, loan-to-value or other standard lending factors. The thinking is: If you get a lower interest rate, you'll likely be better able to make your monthly mortgage payments. However, remember, individual loan providers can have their own lending standards.
With less paperwork, no appraisal requirement, and a faster turnaround from application to decision, a Streamline Refi gets you a lower interest rate as quickly as possible.
There will still be closing fees, and you must be current on payments to qualify.
VA and USDA loans also offer Streamline refinancing, though particulars may vary between each program.
The VA streamline refinance is called IRRRL (and yes, it's pronounced 'Earl'). That's stands for interest rate reduction refinance loan. Your original Certificate of Eligibility will qualify you. You may also need to pay another funding fee.
The USDA streamlined refinance is available to homeowners even if the savings are as little as $50 per month. Income limits still apply.
Cash-out refinance
Over time, as you make those monthly payments over the years, you'll begin to build equity in your home. That's a combination of the debt you've paid down combined with the value your home has gained.
You can tap into that locked-in worth by taking out a cash-out refinance. This is a new loan that combines what you still owe with the money you take out.
While the FHA and VA allow cash-out refinancing, you cannot complete a cash-out refi on your USDA loan.
Learn more:
How to get a mortgage if you have bad credit
Getting a mortgage is rarely easy, whether you have good or bad credit. Papers — or pixels representing papers — fly back and forth. You have to prove how much money you make and document just about everything.
If you have bad credit, it may seem practically impossible to reach the finish line — called closing on a house.
Stay cool. Don't let the little setbacks that are bound to happen sap your patience.
Most importantly, talk to more than one lender. You might be surprised how different they can be. Talk to three or four lenders and apply for a mortgage preapproval. If this preliminary application is accepted, you'll receive a Loan Estimate, showing the loan terms and interest rate you qualify for. This is not a final approval.
Closely review all of the fees. Negotiate those that you can. Understand how much your monthly payment will be, including taxes and insurance. Ask questions and make sure you understand the answers at each step of the loan process.
Getting a home loan is a big deal. Don't rush it.
Read more: Can you buy a house with no credit? Yes — here's how.
Mortgage lenders that did not make our list of the best lenders for bad credit
We considered the following mortgage lenders for our best-of list for bad-credit borrowers, but they weren’t quite as strong as our top picks:
Even though these lenders didn't quite make the list this time, you might still consider any of them. Read our individual mortgage lender reviews to learn more about each company.
Best mortgage lenders for bad credit FAQs
Why does my mortgage rate seem so high?
One downside of having bad credit: Lenders price in the risk they're taking with a higher interest rate. That's why talking to more than one lender is so important. Each mortgage provider has its own lending and pricing procedures. One lender may want your business more than another and offer you a better mortgage rate.
What is considered bad credit for a mortgage?
A score below 620 is the dividing line between a conventional loan and most government loans. FHA loans can serve borrowers with credit scores as low as 500. The higher your score and the greater your down payment, the better your loan terms should be.
Are higher fees charged for mortgages issued to borrowers with bad credit?
Yes. In addition to a higher mortgage interest rate, you will likely pay mortgage insurance premiums and perhaps additional closing costs.
Are there programs to help homebuyers with bad credit?
Yes. Many lenders work with state and local housing assistance programs to obtain grants, vouchers, and other concessions for borrowers with bad credit. Ask each lender you speak to how they can help you find assistance programs. You can also use this NCHSA tool to find housing assistance and finance agencies near you.
What is the lowest credit score allowed for a mortgage?
The lowest credit score that will qualify you for a mortgage is usually 500. You can typically get an FHA loan with a 500 score if you also have a 10% down payment. Otherwise, you'll need a 580 credit score and 3.5% down payment for an FHA mortgage.
What is the easiest home loan to get approved for with bad credit?
The easiest home loan to qualify for with bad credit is usually an FHA loan. You can get an FHA loan with a 500 credit score — but you'll need a 10% down payment. But you can qualify for just a 3.5% down payment if you have a 580 credit score.
Can I get an FHA loan with a 500 credit score?
Yes, you can get an FHA loan with a 500 credit score — but you must also have a 10% down payment. Otherwise, you'll need at least a 580 credit score and 3.5% down payment.
Who is the best lender for bad credit?
We've chosen New American Funding as the best mortgage lender for bad credit. It offers FHA loans (which accept credit scores as low as 580, or even 500 in some cases). It also has VA and USDA loans, which don't have set minimum credit requirements — though each lender sets it own rules about credit scores. NAF also allows for a higher DTI ratio for FHA loans than many lenders.
Yahoo Finance mortgage lender methodology
Yahoo Finance reviews and scores mortgage lenders with quintile scoring in five primary categories: 1) Interest rates. Using 2023 Home Mortgage Disclosure Act data comprised of 10 million home loan applications, we score mortgage lenders on issued mortgage rates below or above the annual median of reporting lenders. 2) Affordability. A measure of loan product availability and the willingness of a lender to offer government-backed loans, low down payments, down payment assistance, and consideration of nontraditional credit. 3) Loan costs. HMDA data is again analyzed, and lenders are rated based on total loan costs compared to the annual median. 4) Rate transparency. The ability of a website user to obtain a mortgage interest rate estimate. We score lenders based on whether rates are enhanced with discount points or high credit score requirements, disclaimers revealing rate assumptions, sample advertised rates, and whether adjustable or no discount point rate estimates are available. 5) Online features. An analysis of the educational material, calculators, and additional resources available to users.
Review of the Nationwide Multistate Licensing System's data on regulatory actions can trigger a penalty to the score of any lender with a consumer mortgage-related administrative or enforcement action within the past five years.
Advertisers or sponsorships do not influence ratings.
To select the finalists for the best lenders for bad credit, Yahoo Finance filtered loan providers who 1) offered a full selection of government loans, which typically offer easier credit qualifying, 2) lenders who considered alternative credit, 3) lenders who offered generous down payment and closing costs assistance, and 4) lenders highly-rated for customer service. Additionally, all lenders considered were required to dedicate a lending volume of 20% or more to FHA loans.
This article was edited by Laura Grace Tarpley.
