Can I Buy a House With a 500 Credit Score?

Key Takeaways

• It’s possible to buy a house with a 500 credit score, though your loan options might be limited.
• FHA loans offer the best chance of approval for borrowers with a lower credit score.
• Due to the increased risk to lenders, borrowers will face higher interest rates and larger down payments.

Buying a house with a low credit score may be challenging, but it isn’t impossible. Unexpected challenges can negatively affect your credit, but homeownership can still be in the cards if you have a credit score as low as 500. Lenders look at many other factors besides credit score, so before you give up on your dream of owning a home, here’s what you need to know if you’re looking to buy a house with a 500 credit score.

Can I buy a house with a 500 credit score?

You can buy a house with a 500 credit score, although your options might be a little limited. Most loan programs have a minimum credit score that borrowers must meet in order to qualify. 

That said, lenders evaluate more than just your credit score. They also consider factors like income, debt, employment history, and your ability to make consistent mortgage payments.

Challenges of buying a house with a 500 credit score

While it’s possible to get a mortgage with a 500 credit score, it isn’t necessarily easy. Lenders use credit scores to assess risk, so a borrower with a low score that doesn’t meet their minimum requirements is not as likely to get approved.

If you do qualify, however, you can expect higher interest rates and stricter loan terms. You’ll also likely need to make a larger down payment, and your loan terms might be very strict. All this is an attempt by the lender to offset any perceived risks of loaning money to a borrower with lower credit.

What credit score do I need to buy a house?

There isn’t a set credit score you need to buy a house, but different loan programs have their own minimum credit score guidelines. As you’ll see below, a 500 credit score won’t qualify you for many of the most common loans, but you won’t be completely shut out of the housing market.

In some cases, borrowers with lower credit scores may still qualify if they have strong income, a manageable debt-to-income ratio (DTI), and a stable employment history.

What loans can you get with a 500 credit score?

A 500 credit score will limit your options when it comes to getting approved for a home loan. Conventional loans, which require a 620 score, are likely out of the question. However, other loan programs might be willing to accommodate a lower score. 

Other options, like USDA and VA loans, don’t technically have a minimum credit score. In both cases, a credit score of at least 620 is preferred, but a 500 credit score can still get you approved if other conditions are met.

Getting an FHA loan with a 500 credit score

Your best chance of qualifying for a mortgage with a 500 credit score is typically through an FHA loan. FHA loans have a minimum credit score of 500 as long as you make a down payment of at least 10%. 

You’ll apply through an FHA-approved lender, and the lender will review factors like your income, debt-to-income ratio, and employment history in addition to your credit score. FHA loans also require mortgage insurance premiums (MIP), and the home must pass an FHA appraisal before the loan can close.

How to improve your chances of approval with a 500 credit score

At the end of the day, a 500 credit score doesn’t mean that home ownership is out of reach. Here are some steps you can take to improve your chances of getting approved for a loan:

• • Lower your credit utilization by paying down credit card balances
  • Don’t open new lines of credit before you apply
  • Make payments on time, especially in the months leading up to your application
  • Save for a larger down payment
  • Get preapproved from multiple lenders and compare

FAQs about buying a home with a 500 credit score

Can I buy a house with bad credit?

A bad credit score doesn’t have to stop you from buying a house. A 500 credit score falls under the “poor” range, so this is possible, but a score under 500 would make it much more difficult.

What is the lowest credit score I can have to get a mortgage?

For most conventional mortgage loans, borrowers typically need a credit score of at least 620. However, FHA loans may allow credit scores as low as 500 if the borrower makes a down payment of at least 10%.

How can I raise my credit score?

Improving your credit score takes time, but a few strategies can help. These include making payments on time, reducing credit card balances, avoiding opening too many new accounts, and disputing any inaccurate information on your credit report.

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