Here, we’re outlining how to find the best mortgage rate with bad credit by improving your financial profile, choosing the right loan types, and working with lenders who cater to lower credit scores. This helps borrowers access home financing, even with credit challenges.

If you’re worried that bad credit might keep you from owning a home, you’re not alone. Many borrowers face challenges due to low credit scores. There’s some good news, though: buying a home is still possible. In fact, with the right strategies, you can still qualify for the best mortgage rate with bad credit that’s available to you.

Whether your credit took a hit due to missed payments, high debt, or unexpected financial hardship, this guide offers nine actionable tips to help you improve your chances of getting approved — and paying less in interest.

Why credit scores matter for mortgage rates 

Lenders use your credit score to determine your risk level as a borrower. The lower your score, the higher the perceived risk — which typically means higher mortgage rates. That said, it’s still possible to qualify for a home loan with a low score. You just have to take a strategic approach to get the best mortgage rate with bad credit that your situation allows.

Here’s how:

#1: Check your credit report for errors

Before applying for a mortgage, pull your credit reports from all three major bureaus: Equifax, Experian, and TransUnion. You’re entitled to one free report from each annually via AnnualCreditReport.com.

Once you have your report in hand, go through it line by line. Look for:

• Incorrect late payments
• Accounts that don’t belong to you
• Duplicate debts
• Incorrect credit limits or balances

Disputing inaccurate information can lead to quick score increases — sometimes in as little as 30 days.

#2: Work with lenders that specialize in bad credit mortgages

Some lenders cater specifically to borrowers with poor credit, offering flexible loan programs with manual underwriting or alternative qualification criteria. A google search for “mortgage with bad credit” can help you turn up options. So can using a mortgage rate comparison site to find lenders that work with low credit scores. 

Your choices might include non-qualified mortgage (non-QM) loans, which use alternative documentation and are designed to make it possible for people in unique financial situations to get a mortgage.

Comparing offers from multiple lenders is key to getting the best mortgage rate with bad credit.

#3: Save for a larger down payment

While 3% down may be enough for borrowers with excellent credit, those with lower scores are more likely to qualify (and get better rates) with a larger down payment.

A bigger down payment:

• Reduces the lender’s risk
• Helps you avoid private mortgage insurance (PMI), an added monthly cost
• May lower your interest rate, even with bad credit

Aim for at least 10% down. You’ll need to get to 20% down to remove PMI. More is always better, particularly when you’re trying to get the best mortgage rate with bad credit.

#4: Improve your debt-to-income (DTI) ratio

Your DTI compares your monthly debt payments to your income. Even with bad credit, having a low DTI shows lenders that you manage your finances responsibly.

To improve your DTI:

• Pay down credit cards or personal loans
• Avoid financing large purchases before applying
• Increase your income, if possible (side jobs count)

Keeping your DTI below 43% is ideal for mortgage approval.

#5: Get preapproved to understand your options

A preapproval shows you exactly how much you qualify for — and at what rate — based on your credit score and some other factors that are specific to you. Getting preapproved helps you:

• Understand your estimated interest rate and monthly payment
• Identify any red flags in your credit file
• Strengthen your offer when shopping for a home

Some lenders offer a soft credit check during pre-approval, which won’t impact your score.

#6: Consider FHA, VA, or USDA loans

These government-backed loans are designed to help buyers who may not qualify for conventional financing. Your options here include:

• Federal Housing Administration (FHA) loans, which allow scores as low as 500 (with conditions)
• Department of Veterans Affairs (VA) loans for eligible veterans, which don’t require a down payment
• U.S. Department of Agriculture (USDA) loans, which require offer 0% down for buyers in rural areas (with income limits)

Because they’re insured by the government, these loans often come with lower interest rates than conventional loans for borrowers with poor credit.

#7: Avoid “no credit check” or high-risk lenders 

It can be tempting to work with lenders who promise instant approval or advertise "no credit check" loans. But beware. The loans these kinds of companies offer often come with:

• Predatory terms
• Balloon payments
• Extremely high interest rates

Stick with reputable lenders and compare multiple offers to find the best mortgage rate with bad credit from a trustworthy source.

#8: Pay down revolving debt before applying

Revolving debt — like credit cards and lines of credit — has a big impact on your score and mortgage eligibility. Paying it off or at least working to shrink your balance improves your credit score. It also shows lenders you’re managing your finances responsibly.

Focus on:

• Paying off high-interest credit cards first
• Keeping balances below 30% of your available credit
• Not closing old accounts, which can shorten your credit history

A modest score improvement could shave 0.25%–0.50% off your mortgage rate.

#9: Use a mortgage broker or comparison site

Shopping around is one of the most effective ways to find a better rate — especially if your credit isn’t perfect.

Working with a mortgage broker or using a rate comparison site:

• Saves you time
• Gives access to multiple lenders at once
• Helps match you with loan programs for your credit range

Pro tip: Look for lenders who offer manual underwriting, which takes a more personalized look at your full financial picture — not just your score. That helps when you’re trying to find the best mortgage rate with bad credit. 

You can get a good mortgage rate with bad credit

Having bad credit doesn’t mean you’re stuck with the highest rates forever. With careful planning, smart comparisons, and the right loan program, you can absolutely find the best mortgage rate with bad credit for your situation.

By checking your reports, improving your DTI, comparing offers, and saving for a larger down payment, you’ll not only qualify for a loan — you’ll set yourself up for long-term financial success.

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Ready to compare real-time mortgage offers, even with bad credit? Use our free tool to see personalized rates from lenders that work with your credit range. No commitment, just clarity.

Compare now and take the first step toward homeownership — on your terms.

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