It may seem impossible to qualify for a mortgage with bad credit in today’s housing market. Many people do not bother applying for a home loan if they think their credit is bad. Unfortunately, this is misguided thinking. Many mortgage programs exist for people with less than stellar credit. Here are some ways you can qualify for a home loan with bad credit.

Credit Scores
Your credit score does have an impact on your mortgage application, but it is not the only factor that determines whether you will qualify. Mortgage lenders evaluate more than your credit score. Your debt-to-income ratio, job history, income and cash reserves also play a big role in the qualification process.

You will obviously get a better interest rate with a good credit score. However, scores are subjective, and what one lender says is a low score is not necessarily the case with other lenders. For example, the average FICO credit score in the U.S. is around 670-680. Some lenders may consider this range of scores as average. Other lenders may say this range of scores is good. Whether or not your score is good or bad all depends on how lenders look at your entire financial portfolio.

Qualifying for a Mortgage With “Bad Credit”
Remember, credit scores are subjective. So, your credit may not necessarily be “bad.” However, lenders do have thresholds where they are just unwilling to take on the risk and loan you money. Here is a tip: If you know your score is below 580, you will have a difficult time finding a lender willing to work with you (unless you have a big down payment).

However, lenders do qualify borrowers for mortgages with credit scores around 620. For example, the Federal Housing Administration will insure loans for borrowers with scores as low as 620 and down payments as low as 3.5 percent of the purchase price. Borrowers who are veterans can qualify for loans with no credit score and no down payment. Keep in mind that the VA and FHA do not lend money. The agencies only provide insurance to lenders in the event you default on your mortgage.

A bad credit score does not immediately disqualify you from obtaining an affordable home loan. It pays to do your homework and research lenders who may be willing to work with you.