Best Mortgage Lenders of 2022 if You Have a Bad Credit Score
Written by luck on May 16, 2022
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The home-buying process is notoriously stressful and often confusing, especially if you’re worried that having less than ideal credit will essentially disqualify you from participating. Fortunately, some lenders will still consider applicants with lower credit scores, typically if they’re around the 580 mark.
Select rounded up several such lenders — all of which will consider applicants with credit scores lower than the typical 620 requirement — and evaluated each lender based on the types of loans offered, customer support and the required minimum down payment amount, among other factors (see our methodology below.)
Remember that it’s important to do your homework so you can choose the best mortgage lender to suit your needs, whether you’re a first-time homebuyer or purchasing an investment property. While we’ve included a FAQ section below to help you get acquainted with some aspects of the process, if you have more specific questions, reach out to a representative or an advisor at your desired lender.
Also keep in mind that while you may be approved for a mortgage with a low credit score, you’ll likely receive an interest rate that’s on the higher end of the lender’s rate range.
Apply online for personalized rates
Conventional loans, FHA loans, VA loans and Jumbo loans
8 – 29 years, including 15-year and 30-year terms
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
3.5% if moving forward with an FHA loan
- Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
- Can get pre-qualified in minutes
- Rocket Mortgage app for easy access to your account
- Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
- Doesn’t offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
- Doesn’t manage accounts for jumbo loans after closing
Who’s this for? Rocket Mortgage is one of the biggest mortgage lenders in the U.S. and has recently become a household name. While most mortgage lenders tend to look for a minimum credit score of 620, Rocket Mortgage accepts applicants with credit scores as low as 580.
The lender even has a free program called Fresh Start that’s aimed at helping potential applicants boost their credit score before applying. Keep in mind that if you apply for a mortgage with a lower credit score, you may be subject to interest rates on the higher end of the lender’s APR range.
Rocket Mortgage offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing option for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn’t offer construction loans (if you want to build a brand new custom home) or a home equity line of credit (also called a HELOC), but if you’re only planning to purchase a single-family home, a second home, or a condo that’s already on the market, this shouldn’t be a major drawback.
Who’s this for? Navy Federal Credit Union provides the most benefits to current or retired members of the Armed Forces who have signed up for a Navy Federal Credit Union membership (immediate family members are also eligible). Homebuyers can use the RealtyPlus program to buy a home and receive up to $9,000 in cash back. Private mortgage insurance, or PMI, is also not a requirement for a low down payment on a mortgage through this particular vendor.
Navy Federal Credit Union also offers VA loans with the option to pay 0% down and contribute up to 4% of the home’s value toward closing costs. Another option, the Military Choice mortgage, has similar guidelines to the VA loan, such as no PMI and a 0% minimum down payment, but allows sellers to contribute up to 6% of the home’s value toward closing costs.
Apply online for personalized rates
Conventional loans, FHA loans, VA loans and Jumbo loans
- Citi’s HomeRun Mortgage program allows for a downpayment as low as 3%
- Citi’s Lender Assistance program gives eligible homebuyers a credit of up to $5,000 to use toward closing costs
- Ability to choose between fixed-rate and adjustable-rate mortgages
- New and existing Citi bank customers can qualify for closing cost discounts based on their account balance
- HomeRun mortgage program allows for a downpayment of less than 20% without PMI
- Provides homeownership education and counseling
- No options for a 0% downpayment
- Existing customers need high account balances to receive some of the highest interest rate discounts
Who’s this for? Those who apply for a mortgage through Citi’s HomeRun program can make down payments as low as 3% without having to make monthly PMI payments, typically a required monthly charge with other mortgage plans if you make a down payment of 20% or less, and one that can easily eat into your monthly budget. If you’ve already purchased your home, this program can also be used to refinance your mortgage.
HomeRun mortgages allow you to lock in a fixed rate on your loan so you won’t have to worry about potentially being charged even more interest down the line. This mortgage option is also ideal for those who need to borrow up to $647,200 — or up to $970,800 if you reside in Hawaii or Alaska.
Aside from the HomeRun program, Citi offers various discounts for anyone interested in their other mortgage loans.
Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. You’ll likely have to provide bank statements, pay stubs, tax forms and employment verification, among other requirements, and once pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and start making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.
A mortgage is a type of loan you can use to purchase a home. It’s also an agreement between you and the lender that essentially says you can purchase a home without paying for it in full and upfront — you’ll just need to put some of the money down — usually between 3% and 20% of the home price — and pay smaller, fixed monthly payments over a certain number of years, plus interest.
For example, you probably wouldn’t want to fork over $400,000 for a home upfront, though you might be more willing to pay $30,000 upfront. Having a mortgage would allow you to make that $30,000 payment while a lender gives you a loan for the remaining $370,000. You would then agree to repay that amount — plus interest — to the lender over the course of 15 or 30 years depending on your terms.
Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance (PMI) payments in addition to your monthly mortgage payments, however you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.
A conventional loan is a loan that’s funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5%.
A Federal Housing Administration loan, or FHA loan, typically allows you to purchase a home with looser requirements — for example, you may get approved with a lower credit score or be able to get away with having a higher debt-to-income ratio. You’ll typically only need to make a 3.5% down payment as well.
A USDA loan is offered through the United States Department of Agriculture and is aimed at individuals who want to purchase a home in a rural area. Best of all, USDA loans require a minimum down payment of 0% — in other words, you can use it to buy a rural home without having to make a down payment.
VA mortgage loans are provided through the U.S. Department of Veterans Affairs, meant for service members, veterans and their spouses and require a 0% down payment with no mortgage insurance.
A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Note that these types of loans are not sponsored by Fannie Mae or Freddie Mac and typically have stricter credit score and debt-to-income ratio requirements.
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, they do tend to move in reaction to actions taken by the Federal Reserve on its interest rates.
While market forces may influence the general range of mortgage rates, your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.
A 15-year mortgage gives homeowners 15 years to pay it off in fixed, equal amounts plus interest, while a 30-year mortgage gives homeowners 30 years to pay it off. With a 30-year mortgage, your monthly payments will be lower since you’ll have a longer period of time to pay off the loan, however you’ll wind up paying more in interest over the life of the loan since it is charged on a monthly basis. A 15-year mortgage, on the other hand, lets you save on interest but you’ll likely have to make a higher monthly payment.
To determine which mortgage lenders are the best, Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best mortgages, we focused on the following features:
- Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
- Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property.
- Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.
- Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances in which a particular lender does.
- Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
- No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early.
- Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches.
- Customer support: Every mortgage lender on our list provides customer service via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
- Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount.
After reviewing the above features, we sorted our recommendations by best for overall financing needs, quick closing timeline, lower interest rates and flexible terms.
Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee the interest rate and monthly payment remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.