Best Mortgages for Bad Credit of 2020

Buying a house with bad credit can be tricky. However, your credit score is only one part of your mortgage application. You have several government-backed loan options that might lend to you even if your credit score is under 600. The best bad credit mortgages allow you to make a low down payment and have low interest rates. Using our SimpleScore methodology, we rated and reviewed the top mortgage lenders for bad credit of 2020.

When evaluating these lenders, The Simple Dollar uses SimpleScore methodology to make recommendations.

In this article

    Current mortgage rates

    According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.

    Product Interest Rate APR
    30-Year Fixed Rate3.030%3.370%
    30-Year FHA Rate3.240%3.740%
    30-Year VA Rate2.960%3.120%
    30-Year Jumbo Rate3.090%3.210%
    20-Year Fixed Rate2.980%3.270%
    15-Year Fixed Rate2.560%2.890%
    15-Year Fixed Jumbo Rate2.600%2.660%
    5/1 ARM Rate3.060%4.060%
    7/1 ARM Rate2.950%3.960%
    7/1 ARM Jumbo Rate2.910%3.930%
    10/1 ARM Rate3.040%3.910%

    Rates data as of 10/21/2020

    The 7 best mortgages for bad credit of 2020

    The best mortgages for bad credit at a glance

     APRMinimum Credit ScoreFHA Minimum Down Payment
    New American Funding3.62% FHA6003.00%
    Rocket Mortgage3.49% FHA5603.50%
    SunTrust Bank3.6143% FHA5803.50%
    TD Bank4.138% FHA5803.00%
    US Bank4.31% FHA5803.50%
    Wells Fargo Home Mortgage2.961% VA6003.00%

    Best for loan variety – New American Funding

    We like New American Funding for its array of bad credit loans. However, we’d prefer to be able to make more headway in the application process online rather than calling a representative.

    J.D. Power Rating
    N/A
    Min. Credit
    500
    Min. Down Payment
    3%
    SimpleScore
    4 / 5.0
    close
    SimpleScore New American Funding 4
    Perks 4
    Credit Impact 4
    Customer Satisfaction N/A
    Product Variety 5
    Fees 3

    New American Funding offers a wide variety of types of loans but less online rate access than other options.

    New American Funding has almost any loan you can imagine — conventional, government-backed, rural housing, veteran-focused and more. Therefore, if you’re looking for a one-stop-shop for loans you can qualify for with a low credit score, New American could be your place. Its rates are lower than some other options out there, as well. You can get a loan from this company in any state except New York and Hawaii.

    However, one big drawback is the lack of rate shopping online. To get a rate quote, you have to fill in your information, so for the casual browser, this lender isn’t the easiest choice. Other lenders show a breakdown of rates on their websites that make it easier to look at multiple lenders without committing to anything.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on bad credit mortgage loans, please visit the lender site.

    Best for Online Process – Rocket Mortgage

    We like Rocket Mortgages for its top-notch customer satisfaction ratings, its large array of loan choices and its straightforward online platform.

    J.D. Power Rating
    5/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.4 / 5.0
    close
    SimpleScore Rocket Mortgage 3.4
    Perks 4
    Credit Impact 4
    Customer Satisfaction 5
    Product Variety 3
    Fees 1

    Customer satisfaction is high for this online branch of Quicken Loans, making it a good choice if you want a hassle-free experience.

    Rocket Mortgage is the online offshoot of Quicken Loans. When you apply for a bad credit mortgage through Quicken Loans, you’ll head straight to Rocket Mortgage. Thus, the positive review of Quicken Loans holds true for Rocket Mortgage, as well. It leads the pack in customer ratings, gives a lot of choices for types of loans and gives you an accessible online portal for your loan application.

    The main issue we found with Rocket Mortgage is that its rates can be higher than much of the competition. Plus, the APR — which includes the interest, plus broker and lender fees — is one of the higher rates as well. Thus, you might end up paying more for top-notch customer service.

    Best for low interest rates – Truist

    We appreciate that Triust/SunTrust has positive customer satisfaction ratings, allows online rate shopping and offers the lowest rates on the list. However, the APR comes up higher than the competition, meaning you might end up paying the same amount as other options.

    J.D. Power Rating
    4/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    4 / 5.0
    close
    SimpleScore Truist 4
    Perks 4
    Credit Impact 3
    Customer Satisfaction 4
    Product Variety 5
    Fees 4

    Suntrust provided the lowest current rates out of all the lenders we looked at, but the overall APR is higher than average.

    SunTrust Bank offers a lot of positive aspects, like online rate shopping. You can see today’s estimated rates on its website, which makes it simpler when you’re looking at multiple lenders. Plus, the mortgage rates we found were lower than all the others on this list, and there’s no origination fee. Also, it can boast higher-than-average customer satisfaction ratings.

    However, the APR, which is your interest rate plus any monthly fees, is higher than the rest of the options on the list. Therefore, you might end up paying about the same amount as other lenders when all is said and done. When you’re shopping for bad credit loans, make sure to examine the overall APR as well as the interest rate.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on bad credit mortgage loans, please visit the lender site.

    Best for construction loans – TD Bank

    TD Bank is an excellent option if you’re looking to build a new home — on the East Coast, However, there may be better options if you’re looking for a government-backed loan.

    J.D. Power Rating
    3/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.2 / 5.0
    close
    SimpleScore TD Bank 3.2
    Perks 3
    Credit Impact 3
    Customer Satisfaction 3
    Product Variety 5
    Fees 2

    If you’re looking to build your own home, TD Bank’s new construction loan could be a good fit, but customer ratings are a bit lower than its competitors.

    If you’re looking to build new construction, you might consider a mortgage through TD Bank. Its new home construction loans make the process easy because you only have one closing when the installation is finished. Additionally, you can rate shop and apply for a loan online, which is convenient for anyone comparing lenders.

    On the other hand, the bank’s rates are average, and the overall APR with its FHA loan is quite high. Plus, it’s only available on the East Coast of the United States, and the customer satisfaction ratings are a bit lower than the competition.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on bad credit mortgage loans, please visit the lender site.

    Best for easy online experience – U.S. Bank

    We appreciate the amount of upfront information about its mortgages that US Bank supplies on its website. However, its average customer ratings and higher rates may mean it’s not for everyone.

    J.D. Power Rating
    3/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    4 / 5.0
    close
    SimpleScore U.S. Bank 4
    Perks 4
    Credit Impact 4
    Customer Satisfaction 3
    Product Variety 5
    Fees 4

    US Bank offers a lot of information on the mortgage process, fees, and rates on its website, which makes it a pleasant online experience.

    US Bank stood out for the amount of upfront information it gives the customer on its website about today’s rates, fees and the application process. The information is useful for customers to have, and you don’t even have to make a phone call to find out. Also, to pre-qualify, the bank performs a soft credit check, so you don’t have to worry about your credit score going down in the beginning.

    However, the mortgage rates are slightly higher than the others on the list. Furthermore, US Bank received middle-of-the-road marks from J.D. Power in terms of customer satisfaction. It may have some catching up to do before it becomes customers’ first choice.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on bad credit mortgage loans, please visit the lender site.

    Best for VA loans – Wells Fargo

    Wells Fargo provides one of the only USDA loan offerings on the list, so rural America could benefit from this lender. However, the recent fraud scandal may have tainted people’s faith in the bank.

    J.D. Power Rating
    3/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.6 / 5.0
    close
    SimpleScore Wells Fargo 3.6
    Perks 4
    Credit Impact 3
    Customer Satisfaction 3
    Product Variety 4
    Fees 4

    Wells Fargo gives customers a large variety of loan options, and your best bet for a bad credit mortgage is the VA loan program through Wells Fargo.

    Wells Fargo’s VA program specializes in getting veterans and military members into their homes. It comes with low or no down payments — 100% financing can come from the loan itself. Furthermore, closing costs and down payments (if required) can come from a grant or cash gift, making it easy to scrounge up the cash for closing costs.

    However, many potential mortgage customers may balk at the idea of closing with Wells Fargo after the bank was found performing account fraud in recent years, in addition to a glitch in the system that foreclosed people’s homes without reason. Some people stopped trusting the bank after this information came out.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on bad credit mortgage loans, please visit the lender site.

    What is a mortgage for bad credit?

    Buying a house with bad credit is possible, but you need to look for loans that allow you to have a low credit score, as well as a small down payment requirement. Some examples are government-backed mortgages, like those through the Federal Housing Administration (FHA), Veterans Affairs (VA) or U.S. Department of Agriculture (USDA).

    With these loans, you can sometimes qualify if your credit score is above 500. Most requirements state your score must be above 580, but your credit score is only one piece of your entire application. If the rest of your application looks good, or you have enough cash saved up for a 20% down payment, you might be able to get a home loan.

    How bad credit home loans work

    Getting a mortgage with bad credit can seem impossible, but it’s not. Most lenders consider several factors in addition to your credit score, like how much money you have for a down payment and how much you’re asking to borrow. They will also look at your debt-to-income ratio, so if you don’t have a lot of other debt, that shows you don’t spend beyond your limits.

    Before you apply for a bad credit mortgage, you’ll need to make sure you qualify. Government-backed loans have an income limit and other criteria, like needing to be connected to the military to get a VA loan. Don’t apply before you’re sure you meet the qualifications because each lender will have to perform a hard credit check. This can lower your credit score by a few points each time.

    APRs

    APR stands for annual percentage rate, which is the amount you pay each year with fees and interest in return for the loan. In other words, it’s your interest rate plus any fees, and it’s calculated as a percentage of your total borrowed amount. You want to qualify for the lowest APR possible on your mortgage loan, which can be hard to do with bad credit. Government-backed loans typically offer low APRs to borrowers, though.

    Read: What Is an FHA Loan?

    FHA and VA loans

    Certain governmental departments back FHA and VA loans, and you pay a premium for that with FHA loans. If you stop paying your mortgage, the government agrees to step in to pay the lender. In return, though, you get a mortgage loan with more flexible parameters. You can get an FHA mortgage with a down payment as low as 3.5%. Your credit score can be as low as 500 to qualify in some cases, but each lender will have its own.

    On the other hand, VA loans are limited to active duty military, veterans or spouses of veterans. There’s no down payment required, and you don’t have to pay for extra mortgage insurance like you would with an FHA loan or with less than 20% down on a conventional loan. The interest rates on both FHA and VA loans depend on the market but are usually lower than conventional loan options, which can make it easier for borrowers to afford.

    Read: When Veterans Should (and Shouldn’t) Use a VA Loan

    Debt-to-income ratio

    Lenders look at how much debt you have compared to how much income you’re bringing in, which is your debt-to-income ratio (DTI). Your DTI should be as low as possible to prove you aren’t taking on more debt than you can afford. A DTI above 49% is considered fiscally unhealthy, and you might want to pay down some of your debt before you apply for a mortgage.

    Read: The Surprising Figure That Can Torpedo Your Chances at Getting a Mortgage

    How should I choose the right mortgage for bad credit?

    1. Figure out how much home you can afford. Gather your information, like your credit report, your credit score and your debt-to-income ratio.
    2. Call around and inquire about several lenders’ mortgage rates, along with the minimum credit score and minimum down payment requirements. Don’t apply for anything yet.
    3. Apply for the loans within 45 of each other so you only take one hit on your credit score. When buying a home, applications are typically lumped together under one hard inquiry for a 45-day span.
    4. Find out which loans you qualify for and select the one with the best interest rate and most enticing terms.

    Mortgages for bad credit FAQs

    You’ll be better off getting a conventional loan if you can because you have to pay for extra mortgage insurance for at least 11 years with an FHA loan. This can add up to several hundred dollars per month to your loan note. With a conventional loan, your extra mortgage insurance is required to be removed once you’ve reached 22% equity in your home.

    If you’re using a conventional loan, you’ll want to make as close to a 20% down payment as possible. If you put more than 20% down, you don’t have to pay for extra mortgage insurance each month. A higher down payment can also help lower your mortgage rate and get you a bit closer to paying off the house. Just remember to keep enough cash on hand to cover closing costs.

    That depends on your circumstances, but usually, the answer is yes. There are two instances you might consider an adjustable rate loan: if you’ll move before the rate starts fluctuating or you foresee rate decreases in the next several years.

    We welcome your feedback on this article and would love to hear about your experience with the bad credit mortgages we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Methodology

    SimpleScore

    We’ve created the SimpleScore to help you objectively compare products and services here at The Simple Dollar.

    Our editorial team:

    • Identifies five factors to compare across each brand
    • Determines the rating criteria for each factor
    • Calculate an average of those five factor scores to get one SimpleScore

    We break down each of these five factors and their rating criteria for our review of the best mortgage companies.

    Why do some brands have different SimpleScores on different pages?

    Some brands like Bank of America, Wells Fargo, and Chase have different SimpleScores because they offer more than one financial solution — like home loans, auto loans, personal loans and more.

    For instance, in our Bank of America Mortgage Review, we give the company a 3.8 out 5 based on our five rating factors for mortgages. In our Bank of America Auto Loans Review, we give the company a 4.4 out of 5 based on our rating factors for auto loans. By tailoring our SimpleScore to each financial solution, we’re able to give you a more accurate view of a brand’s services and how it compares to competitors’ services.

    Perks

    Mortgage lending companies that provide more perks receive a higher score from us.

    Hard/Soft credit checks

    We know that credit checks affect your score –– that’s why we favor companies that offer soft credit checks or hard credit checks when you want to see your pre-approval rates.

    Customer satisfaction

    We use the J.D. Power 2019 Mortgage Origination Satisfaction Study℠ to find out how customers rate their experience with each company. (If a company is not included in J.D. Power’s study, we skip this rating factor and average the remaining factor scores.)

    Product variety

    Mortgage lenders that offer more products for their home loans are given higher scores.

    Fees

    Fees can add up fast. Companies that don’t require as many fees for your home loan receive a higher score with us.

    Tiffany Verbeck

    Contributing Writer

    Tiffany Verbeck is a personal finance expert. She uses her storytelling skills gained from a master’s degree in writing to run a freelancing business focused on helping people make and manage their money. She has been published in The Financial Diet, Fast Capital 360, The Write Life, Matador Network and other publications

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik
      Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in insurance, personal finance, and loans. Previously, she wrote and edited for Interest.com, PersonalLoans.org, Ballantyne Magazine, Thread Magazine, The Post, ACRN, The New Political, Columbus Alive and the Institute for International Journalism.