How to get a mortgage with a low credit score

If you have a low credit score, you may feel that your dream of homeownership is hopeless. But that is the wrong outlook. There are financial strategies and mortgage loans out there that could help you realize your dreams – even if you have bad credit. Here is what you need to know to get a mortgage with a low credit score.

Is it possible to buy a home with poor credit?

Yes—it is possible to buy a home with poor credit. But because mortgage interest rates rise as your credit score drops, receiving a home loan with poor credit will likely cost you more money. In fact, throughout the life of your loan, even a seemingly negligible gap in your mortgage interest rate will cost you upwards of tens of thousands of dollars. For instance: for anyone with a credit score between 700 and 759, the average national mortgage interest rate is 2.85%. For anyone with a credit score of 620 to 639, the average national mortgage interest rate sits at 4.22%. That makes it a 1.37% difference between the two rates.

In April of 2021, the median house price in the United States was roughly $370,000, meaning that with a 20% down payment and a 30-year fixed-rate loan, you would pay roughly $145,000 in interest over the life of the loan (with the higher credit score). If you had the lower credit score, on the other hand, you would pay about $227,000 in interest over the life of the loan. That’s a difference of just over $80,000.