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Here's a list of home loans if you have a 500 credit score.

Here’s a list of home loans if you have a 500 credit score

When people find out that they have a 500 credit score, it is rational to ask if they can qualify for a mortgage given a low credit score. However, when you take into account that even consumers without credit scores can avail of home loans, it’s more reasonable to ask, “What kind of mortgage loan should I get for my house?”

Even a decade after the housing market crash of the late 2000s, many options remain for low credit applicants. And these are not limited to subprime loans that still do exist today.

Unfortunately, bad credit does mean you won’t meet the minimum credit score needed to qualify for traditional or conventional loans, which is the mortgage type most often preferred if you want to get the least costs. You will need to work hard for a better credit score and prepare a larger down payment to get this kind of loan.

There are fallbacks, however, in the form of government-insured loans. These are home loans guaranteed by Uncle Sam so that lenders can approve more loans to keep the housing market strong. These loans require that you are buying a house strictly for a primary residence purpose. Below, you’ll read about different types of mortgages for a 500 credit score, as well as a few lenders who offer these options.

Home Loans: 500 Credit Score

FHA Loans

FHA vs. Conventional

Most Americans will usually only choose between two types of mortgages: conventional loans or FHA loans. Conventional loans are borrowed from private lenders. The government does not insure these. As a result, you can typically borrow more money without spending more on fees. However, most lenders usually ask for a minimum credit score requirement in the 600s.

When you can’t qualify for a conventional loan, your next option is getting an FHA loan. These are mortgages guaranteed by the Federal Housing Administration. If conventional loans are more for experienced borrowers with credit scores in the Good range, FHA loans are aimed more at first-time homebuyers, especially borrowers with credit scores in the Poor to Fair FICO Score range.

Anyone with a minimum credit score of 500 can apply for an FHA loan. But if you already have a 620 or higher credit score, it makes more sense to go for a conventional mortgage. Whereas you can make a minimum down payment of 3% for conventional loans, the lowest money down for an FHA loan is 3.5 percent. And you can only be allowed to make this minimum deposit if you have a credit score of 580 or higher. Since you have a 500 credit score, you have no choice to pay at least 10% of your home’s purchase price.

Another reason why more people would choose a conventional loan over an FHA loan is the cost of mortgage insurance. These are called slightly different names for the two types of loans; private mortgage insurance for conventional loans and mortgage insurance premiums for FHA loans. However, they essentially have the same goal. This fee ensures the lender in case the borrowers stop repaying the loan. You don’t have to pay insurance for conventional if you pay at least 20% of your home’s purchase price. On the other hand, the mortgage insurance stays for at least eleven years of loan payments for FHA. That’s 132 months of insurance charges that have no benefit for you as a borrower.

FHA vs. Subprime

There is some good news, though. FHA loans are still a much better idea than subprime loans from possibly sketchy lenders. Subprime or Non-QM loans (as they have come to be called today) typically charge higher interest rates than FHA mortgages. You usually get these if you don’t have income or employment documentation as well as bad credit. In addition, the loan does not have the government’s backing as in the FHA loan, so lenders often have to charge more expensive interest rates to earn from their investment.

Down Payment

It is also very common for borrowers with poor credit to need the help of down payment assistance programs. Again, the ability to apply for these is a benefit of the FHA loan. But, again, this isn’t something you can do if you’re getting a conventional or subprime loan.

Since the minimum down payment you need to pay at this point is 10 percent, it can be a little steep for someone in your situation. In recognition of this, the FHA has no issue with borrowers raising down payment funds from gifted cash, if it is given by family members or friends, or from down payment assistance grants from local or state programs.

FHA Mortgage Lenders

  1. Carrington Mortgage Services – can offer 15 or 30-year fixed-rate and adjustable-rate mortgages with 5/1, 7/1, or 10/1 loan terms.
  2. Freedom Mortgage – has over 100 branches all over the country and can also offer online consultations.

USDA Loans

According to the Census Bureau, 97% of the U.S. is rural. So as niche as the rural housing loan may sound, it can cater to millions of Americans.

The U.S. Department of Agriculture is another government agency that backs housing loans. As you might guess, they can only insure your home if you live in a rural area. However, you don’t need to have a farm or be in the ranching business to avail of this type of loan. They will not allow you to have any income-generating opportunities on the property. You might be able to avail of farm loans from the USDA, but these will be separate from your USDA housing loan.

These loans are aimed primarily towards lower-to-middle income households, which is why there is a household income limit depending on the county where your home is located. You are also welcome to apply regardless of what credit score you have. Though take note that, in your scenario, you will have to go through manual underwriting. With USDA loans, you go through the usual lender approval process, but in the end, the lender still submits your application to the USDA for another round of underwriting. You have to prepare to tell them the story behind your 500 credit score and the documentation to prove this. If you still have unpaid medical bills or accounts in collection, these may help your application as long as they find compensating factors in your background. Like do you currently have stable employment? Are you taking in more debt than the money you are earning? And what other assets do you have?

For USDA mortgages, there is no down payment required, and this can be very helpful for lower credit applicants. We would always recommend here, though, to put at least some money down so you can earn home equity faster and get an overall cheaper mortgage. The quicker you earn home equity, the sooner you can also avail home equity loans in the future.

USDA Mortgage Lenders

  1. Flagstar Bank – this lender has cheaper than industry-average mortgage rates, but you might want to consider improving your credit or getting credit repair to meet a minimum credit score of 580
  2. Movement Mortgage – offers USDA regardless of state but may not accept a credit score less than 580


One of the after-effects of the COVID-19 pandemic is that USDA mortgages are increasingly harder to qualify for, so lenders who approve for USDA tend to have stricter overlays.

In your situation, if you can delay your loan application, it will be the best thing to do. More mortgage lenders can look at your application if you have a slightly higher credit score. You can work on your credit by yourself or consider hiring the services of credit repair companies. If you are in a hurry to buy a house and delaying is not an option, you can think about getting help from a mortgage broker who will be the one to shop around for lenders.

VA Loans

As far as government-backed loans go, the Department of Veterans Affairs insures a housing loan that offers the best deal. With a VA loan, you have the best features of USDA and FHA loans combined with none of their unique drawbacks.

For VA loans, there is neither a down payment requirement nor a location limitation. You also don’t have to pay for mortgage insurance, although a VA funding fee will be charged.

Regrettably, you can only apply for this mortgage loan if you have qualified military experience or you are the spouse of a deceased veteran and haven’t remarried.

To get approved for a VA loan, the Department says there are no minimum credit score requirements. This is because many veterans have been able to avail themselves of VA with bad credit since it was first offered in the 1940s. However, this requirement will vary per mortgage lender today, so it will be reasonable to expect exceptions to this rule.

VA Mortgage Lenders

  1. Navy Federal Credit Union – can offer lower mortgage rates and can accept a higher debt-to-income ratio.
  2. Loan Depot – you can get a mortgage preapproval in under half an hour, but the minimum credit score needed for VA loans is 620


While there may not be a long list of types of mortgage to choose from, thousands of mortgage lenders can be found in all 50 states.

With a 500 credit score, the odds are you might get an FHA loan, especially if you don’t want to buy a house far from the big cities or you are not a veteran.

If you would like to open yourself to more loan options and mortgage lenders, though, we suggest spending time to clean up your credit history to get a higher credit score. Everyone can get a free credit report from Annual Credit Report, and from here, you can check if any errors may be pulling down your credit score.

Increasing your credit score by 80 points can make a difference in your down payment and loan choices. For FHA, you will have more leeway by paying as low as 3.5% down payment, while for VA and USDA, you’ll be able to compare mortgage rates of a lot more lenders.

Borrowers with credit scores of 620 and above, though, will get the best mortgage loan options. In addition, they might not have to worry about which mortgage lenders to apply with or the type of mortgage they can choose.

Save yourself the money you might spend on a higher monthly payment, credit repair, or mortgage brokers by taking steps to improve your credit score today! We know you can do it!

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