Advertiser Disclosure

Mortgage

U.S. Mortgage Market Statistics: 2018

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Homeownership rates in the United States have increased steadily since the height of the 2007-2010 housing crisis. Despite this, increasing interest rates and high home prices have kept the homeownership rate much lower throughout 2018 than it was during the era before the crisis.

Housing prices have recently begun to cool, however, which may create opportunities for some would-be buyers to be able to afford a home. But this does not mean that the homeownership rate will approach its previous peak levels anytime soon. Nonetheless, the overall housing market is in a healthy state, with very low levels of distressed loans.

Throughout this piece, we dig into a broad range of housing metrics to help paint a picture of the current state of the housing market, explain who gets home financing, how mortgages are structured and how Americans are managing our debt.

Summary:

  • Total mortgage debt: $10.3 trillion1
  • Average mortgage balance: $148,0602
  • Average new mortgage balance: $260,3863
  • Homeownership rate (share of owner-occupied homes): 64.4%4
  • Homeowners with a mortgage: 63%5
  • Median credit score for a new mortgage: 7586
  • Average down payment required: $28,9327
  • Mortgages originated in 2017: $1.75 trillion8
  • Share of mortgages originated by banks: 40%9
  • Share of mortgages originated by credit unions: 9%9
  • Share of mortgages originated by nonbank lenders: 51%9
  • Share of mortgages with a delinquency rate of 30 days or more: 3%20

Key insights:

  • While credit score requirements are still more lax than they were in 2012, the median credit score for a new mortgage in 2017 was 758, four points higher than it was in 20166
  • 3% of mortgages on single family homes are in delinquency, or at least 30 days past due. In 2010, mortgage delinquency reached 11.54%20

Homeownership and equity levels

In the second quarter of 2017, real estate values in the United States surpassed their pre-housing-crisis levels. As of the third quarter of 2018, the total value of real estate owned by individuals in the United States is nearly $25.6 trillion19, and total mortgages clock in at $10.3 trillion.1 This means that Americans have $15.2 trillion in home equity.12 This is the highest value of home equity Americans have ever seen.

However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 64.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership also corresponds to banks’ tighter credit standards following the Great Recession.

New mortgage originations

Mortgage origination levels have recovered from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25% lower than their pre-recession average.8 New first lien mortgages fell to $1.8 trillion in 2017. Through the second quarter of 2018, banks originated just $820 billion in new mortgages, which is $20 billion lower than it was at the same point in 2017.

As recently as 2010, three banks (Wells Fargo, Bank of America and Chase) originated 56% of all mortgages.13 But in 2017, Wells Fargo, Bank of America and Chase and all banks put together originated just 40% of all loans.9

“Nonbank” lending, both credit unions and nondepository lenders have continued to cut into banks’ share of the mortgage market. In 2017, credit unions issued 9% of all mortgages. Additionally, 51% of all mortgages in 2017 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($212 billion) and Chase ($108 billion), Quicken ($86 billion) was the third-largest mortgage issuer in 2017. In the fourth quarter of 2017, PennyMac issued $17 billion in loans and was the fifth largest lender overall.9

Government vs. private securitization

Banks tend to be more willing to issue new mortgages if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence which entity buys their mortgage, but mortgage securitization influences who gets mortgages and their rates.

Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring banks will issue new mortgages. Through the second quarter of 2018, GSEs Fannie Mae and Freddie Mac purchased 44% of all newly issued mortgages, down from 46% in the second quarter of 2017.8

Through the second quarter of 2018, private securitization companies purchased only 2% of all loans, notably higher than the .6% purchased in 2017.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today, private securitization companies hold just $438 billion in total assets, including $361 billion in subprime and Alt-A loans.14

As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23% of all loans issued in 2017, and 22% in the first half of 2018.8. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. From 2001 through 2007, FHA and VA loans only accounted for an average $138 billion in loans per year. In 2017, FHA and VA loans accounted for $441 billion in loans issued.8 In 2017, 24% of all first lien mortgages were financed through FHA or VA programs.

Portfolio loans — mortgages held by banks — accounted for $524 billion in new mortgages in 2017. Despite tripling in volume from their 2009 low, portfolio loans remain down 29% from their pre-crisis average.8

Mortgage credit characteristics

As of 2017, banks have issued 31% fewer mortgages compared with a pre-crisis average between 2001 and 2007. This means that borrowers need better credit in order to get a mortgage. 8

The median FICO score for an originated mortgage rose from 707 in late 2006 to 758 in November 2018. 11

Despite the dramatic credit requirement increases from 2006 to today, banks are starting to relax lending standards somewhat. In the first quarter of 2012, the median borrower had a credit score of 781, 23 points higher than the median borrower in November 2018.11

From the third quarter of 2001 through the end of 2008, an average of 20% of all mortgages originated went to people with subprime credit scores (lower than 660). In the third quarter of 2018, subprime borrowers received just 9% of all mortgages.

Meanwhile, the share of mortgages issued to borrowers people with excellent credit (scores above 760) doubled. Between the third quarter of 2001 and the end 2008, just 28% of all mortgages went to people with excellent credit. In the third quarter of 2018, 57% of all mortgages went to people with excellent credit.6

Although banks tightened lending standards related to maximum debt-to-income (DTI) ratios for their mortgages in response to the market crash of 2008, they have recently begun to show signs of loosening those standards. For example, the average DTI ratio in 2017, 35.1%, was more than one point higher than the average DTI ratio in 2016, 34.0%. Nonetheless, the average DTI ratio is still lower than it was in 2007 where it was 38.4%.

LTV and delinquency trends

Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger loans than ever before. Today, a new mortgage has an average unpaid balance of approximately $260,000 according to data from the Consumer Financial Protection Bureau.3

The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10

In 2018, the average loan-to-value ratio at origination has fallen to 86% from 87% in 2017.10

As of November, 2018, the average loan-to-value ratio across all homes in the United States is an estimated 40%. The average LTV on mortgaged homes is 63%.16 This is substantially higher than the pre-recession LTV ratio of approximately 60%. Between 2009 and 2011, more than a quarter of all mortgaged homes had negative equity. Today, just 4.2% of mortgaged homes have negative equity.17

Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 15.1% of their annual household income.18

In quarter three of 2018, mortgage delinquency rates were 3.0%. This low delinquency rate is well below the 2010 high of 11.5% delinquency.20

Today, delinquency rates on mortgages fully returned to their pre-crisis lows, and can be expected to stay low until the next economic recession.

Mortgage debt service payments as a percentage of disposable personal income have fallen to their lowest levels since 1980, when the data was first recorded.

Sources:

  1. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS Dec. 18, 2018.
  2. Survey of Consumer Expectations Housing Survey – 2018,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed Nov. 28, 2018.
  3. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “ Average Loan Amount, 1-4 family dwelling, 2017.” Accessed Nov. 19, 2018.
  4. U.S. Census, Homeownership Rate for the United States [USHOWN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/RHORUSQ156N, Nov. 19, 2018. (Calculated as percentage of all housing units occupied by an owner occupant.)
  5. “U.S. Census Bureau, 2017 American Community Survey 1-Year Estimates,” Mortgage Status, Owner-Occupied Housing Units. Accessed Nov. 19, 2018.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Nov.19, 2018.
  7. Calculated metric:
    1. Down Payment Value = Home Price* Average Down Payment Amount (Average Unpaid Balance on a New Mortgageb / Median LTV on a New Loanc) * (1 – Median LTV on a New Loanc)
    2. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “ Average Loan Amount, 1-4 family dwelling, 2017.” Accessed Nov. 19, 2018. Gives an average unpaid principal balance on a new loan = $260,386
    3. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Page 17, Median Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  8. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Page 8, First Lien Origination Volume from the Urban Institute. Source: Inside Mortgage Finance and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  9. Mortgage Daily. 2018. “Mortgage Daily 2017 Biggest Lender Ranking” [Press Release] Retrieved from https://globenewswire.com/news-release/2018/03/26/1453033/0/en/Mortgage-Daily-2017-Biggest-Lender-Ranking.html.
  10. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 26, 2018.
  11. Quarterly Report on Household Debt and Credit November 2018.” Mortgage Delinquency Rates, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Nov. 28, 2018. A breakdown of data can be found here: https://www.newyorkfed.org/microeconomics/hhdc/background.html
  12. Calculated metric: Value of U.S. Real Estate – Mortgage Debt Held by Individuals
    1. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, Nov 28, 2018.
  13. Mortgage Daily, 2017. “3 Biggest Lenders Close over Half of U.S. Mortgages” [Press Release]. Retrieved from http://www.mortgagedaily.com/PressRelease021511.asp?spcode=chronicle.
  14. Housing Finance at a Glance: A Monthly Chartbook, October 2018” Size of the US Residential Mortgage Market, Page 6 and Private Label Securities by Product Type, Page 7, from the Urban Institute Private Label Securities by Product Type, Urban Institute, calculated from: Corelogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 28, 2018
  15. ““Fannie Mae Statistical Summary Tables: October 2018” from Fannie Mae. Accessed Nov. 29, 2018; and “ Single Family Loan-Level Dataset Summary Statistics” from Freddie Mac. Accessed Nov. 28, 2018. Combined debt-to-income ratios weighted using original unpaid balance from both datasets.
  16. Calculated metrics:
    1. Mortgages Houses LTV = Value of All Mortgages / (Value of All Homes – Value of Homes with No Mortgagee)
    2. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, Nov. 28, 2018.
    3. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, Nov. 28, 2018.
    4. U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, Aggregate Value (Dollars) by Mortgage Status, Nov. 28, 2018.
  17. Housing Finance at a Glance: A Monthly Chartbook, October 2018.” Negative Equity Share, Page 22. Source: CoreLogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed Nov. 28, 2018
  18. Survey of Consumer Expectations Housing Survey – 2018,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed Nov. 28, 2018.
  19. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS Dec. 12, 2018.
  20. Board of Governors of the Federal Reserve System (U.S.), Delinquency Rate on Single-Family Residential Mortgages, Booked in Domestic Offices, All Commercial Banks [DRSFRMACBS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DRSFRMACBS Dec. 12, 2018.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

Advertiser Disclosure

Mortgage

Here are the Best Low- or No-Down-Payment Mortgages

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Should you refinance with your current lender?
iStock

It’s an often-cited rule of thumb, but you don’t actually need a 20% down payment to get a mortgage. In fact, you can get a home loan with little money down, and even a no-down-payment mortgage.

Assuming you’re financially prepared for all of the other responsibilities of homeownership, consider the following mortgage programs.

No-down-payment mortgage options

USDA loans

The U.S. Department of Agriculture (USDA) insures home loans made by approved lenders to eligible homebuyers in designated rural areas. As the program states, USDA loans were created to improve the quality of life in rural areas by giving families the opportunity to own a “modest, decent, safe and sanitary” home as their primary residence.

There’s no required minimum down payment or mortgage insurance, but there are guarantee fees. A portion of the fee is paid upfront and is 1% of the loan amount; the other portion is 0.35% of the loan amount and is paid annually.

To be eligible, you must:

  • Have a low-to-moderate income for your area
  • Buy a home in a designated rural area
  • Have a preferred minimum 640 credit score
  • Have a maximum 41% debt-to-income (DTI) ratio

VA loans

The U.S. Department of Veterans Affairs (VA) also offers a no-down-payment mortgage option guaranteed through its VA loan program. These loans cater to active-duty military service members, veterans and eligible spouses, and are offered by private lenders.

Borrowers aren’t required to make a down payment, but there is an upfront funding fee — which ranges from 1.4% to 3.6% of the loan amount — to help offset the program’s costs to taxpayers. The loan must be used to purchase a primary residence.

To be eligible, you must:

  • Have a certificate of eligibility from the VA
  • Have a preferred minimum 620 credit score
  • Show proof of stable income
  • Have a maximum 41% DTI ratio

Low-down-payment mortgage options

Fannie Mae HomeReady® and Standard 97% LTV

Fannie Mae has two low down payment conventional loans: HomeReady® and Standard 97% LTV. The HomeReady® mortgage program is open to both first-time and repeat homebuyers, while the Standard option requires at least one borrower to be a first-time buyer.

Borrowers can’t earn more than 80% of their area median income (AMI) if applying for a HomeReady loan. Additionally, if all borrowers on either a HomeReady or Standard loan are first-timers, at least one of them must complete an online homebuyer education course.

Both programs also require private mortgage insurance (PMI) if you make a down payment of less than 20%, though PMI can be removed after you reach 20% equity.

To be eligible, you must:

  • Have a 620 credit score
  • Have a 3% minimum down payment
  • Have a maximum 50% DTI ratio

Freddie Mac HomeOne and Home Possible

Freddie Mac’s HomeOne mortgage is reserved for first-time homebuyers and doesn’t include any income restrictions. The Home Possible® loan is an option for first-time and repeat buyers with a low to moderate income.

Your income must not exceed 80% of the AMI for a Home Possible® loan. You may qualify without a credit score, but your minimum down payment rises from 3% to 5%. Cancellable PMI is required for borrowers who put down less than 20%.

There’s a homebuyer education requirement for both HomeOne and Home Possible® programs when all borrowers on the loan are first-timers.

To be eligible, you must:

  • Have a 3% minimum down payment
  • Have a minimum 660 credit score
  • Have a maximum 50% DTI ratio

FHA loans

The Federal Housing Administration’s (FHA) low down payment home loans require just a 3.5% contribution and a 580 credit score. You can also qualify for an FHA loan with a credit score of 500 to 579 if you have at least a 10% down payment. Other FHA loans, such as construction-to-permanent loans and 203(k) loans, have the same credit score and down payment requirements.

FHA loans require upfront and annual mortgage insurance premiums (MIP). The upfront premium is 1.75% of the loan amount; the annual premium ranges from 0.45% to 1.05%, is divided by 12 and paid in monthly installments as an addition to your mortgage payment. Borrowers who put down at least 10% only pay mortgage insurance for 11 years; putting down less means you’ll pay MIP for the life of your loan.

To be eligible, you must:

  • Have a 580 credit score and 3.5% down payment
  • Have a 500 to 579 credit score and 10% down payment
  • Borrow within your county’s FHA loan limits
  • Have a maximum 43% DTI ratio

Good Neighbor Next Door

The Good Neighbor Next Door program from the U.S. Department of Housing and Urban Development (HUD) allows homebuyers in certain public service professions to buy a home at a 50% discount. If you qualify for and use an FHA loan to buy a home, the down payment is only $100, instead of the minimum 3.5% that’s usually required.

Eligible borrowers must buy a home located in a HUD revitalization area and commit to live in the home for at least three years. They must also sign a silent second mortgage for the discounted amount, though no payments are required if all program requirements are met.

To be eligible, you must:

  • Be a full-time pre-K through 12th grade educator, emergency medical technician, firefighter or law enforcement officer
  • Buy a home in a HUD revitalization area
  • Qualify for a conventional, FHA or VA loan
  • Live in the home for at least three years

Pros and cons of no or low down payment

Pros

Cons

  • Buy a home sooner. It can take years to save up for a larger down payment. By contributing 0% down or the lowest possible amount, you can reach your homeownership goal in less time.

  • Avoid depleting your savings. If you limit how much money you contribute to your home purchase, you can leave some of your emergency savings intact. Lenders want to know that you can weather financial hiccups, such as a job loss or income reduction.

  • Start out with less equity. The less money you put down, the less home equity you’ll have initially. This means your ownership stake in your home is much smaller, which may lead to pocketing less money if you need to sell in a few years.

  • Take out a larger mortgage. A no- or low-down-payment mortgage means you’ll be close to financing 100% of your home’s purchase price. A larger mortgage means a higher monthly payment amount.

  • Pay more in interest over time. The more money you borrow, the higher your interest rate typically will be. This also means you’ll pay more in interest over the life of your loan.

FAQs about mortgage down payments

Yes, there will be closing costs to pay on your home loan. Mortgage closing costs can range from 2% to 6% of your loan amount. You can pay these costs out of pocket at the closing table, or ask your lender about a no-closing-cost mortgage. With this type of loan, your lender will either increase your mortgage rate or add the closing costs to your loan amount, instead of having you pay those costs upfront.

It depends on the type of mortgage. Conventional loans require private mortgage insurance when you put down less than 20%, and it can be canceled after you’ve built at least 20% equity in your home. All FHA loans require mortgage insurance premiums, but if you put down 10% or more, you can get rid of MIP after 11 years.

Reach out to your loan officer and real estate agent for help identifying any down payment assistance programs you might qualify for. You should also check with your state’s housing finance agency.

Many loan programs let you use monetary gifts from family members, friends and others to help cover your down payment, but there must be a specific paper trail for the gift. The donor will need to submit a gift letter to show that you won’t have to repay the money being gifted to you. Consult your lender for specific guidelines.

Yes, your down payment amount can affect your mortgage rate. The less money you put down, the riskier you can appear to lenders, and they can account for this risk by raising your mortgage rate.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

Advertiser Disclosure

Mortgage

5 Home Loans for People With Bad Credit

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You don’t need a perfect credit score to get a mortgage — there are home loans for people with bad credit. But before getting this type of mortgage, find out how a lower credit score affects your overall borrowing costs.

Buying a home with bad credit

It’s possible to buy a home with bad credit — you could have a credit score as low as 500 and still qualify for a mortgage. The lower your credit score, though, the fewer lending options you’ll have and the higher your mortgage rate will be.

FICO scores, the credit scores used by most lenders, typically range from 300 to 850. Having a lower credit score translates to higher risk for a lender, and vice versa. Any score 669 or lower is considered “fair” or “poor.” Here’s a breakdown:

  • Exceptional: 800 and higher 
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 580 and lower 

Lenders like to see high credit scores because it exhibits an ability to manage debt, make on-time payments and use credit responsibly. Your creditworthiness will come into question if you plan on buying a home with bad credit, but it doesn’t have to hold you back from homeownership.

5 home loans for bad credit

Consider one of the following home loans for bad credit.

Fannie MaeHomeReady

Fannie Mae’s HomeReady mortgage program is an option for both first-time homebuyers and repeat buyers with limited access to down payment funds and a fair credit score. This conventional home loan has cancellable mortgage insurance for those who put down less than 20%, and gives borrowers the option to use boarder or rental income to help them qualify. If all borrowers on a loan are first-timers, at least one borrower is required to complete a homeownership education course.

Eligibility requirements include:

  • A minimum 620credit score
  • A minimum 3% down payment
  • A low- to moderate income

FHA Loans

Mortgages backed by the Federal Housing Administration (FHA) could be considered bad credit home loans because they make it easier for low-credit-score homebuyers to get a mortgage. FHA loans have a low down payment requirement, but you’ll pay mortgage insurance premiums (both upfront and annual) for the life of your loan. If you put down at least 10%, you can get rid of mortgage insurance after 11 years.

Eligibility requirements include:

  • A minimum 10% down payment for a 500-579 credit score
  • A minimum 3.5% down for a 580+ credit score
  • Borrowing within your county’s FHA loan limits

USDA loans

The U.S. Department of Agriculture (USDA) insures mortgages funded by approved lenders through the USDA home loan program. There’s no minimum required credit score, but a 640 score could help you get approved automatically if you meet employment and income requirements.

Eligibility requirements include:

  • No minimum required down payment
  • Meeting local income limits
  • Buying a home in a designated rural area

VA Loans

The Department of Veterans Affairs (VA) also offers bad credit home loans through approved lenders for active-duty service members, veterans and eligible spouses. The VA doesn’t have a specific credit score requirement, but lenders may require a minimum 620score. No down payment is required. Additionally, most borrowers will have to pay an upfront funding fee to offset the cost of VA loans to taxpayers.

Eligibility requirements include:

Non-qualified mortgage loans

The loans discussed above are all qualified mortgages, meaning they meet certain requirements that establish a borrower’s ability to repay a loan. There are also non-qualified mortgage (non-QM) loans, which have more wiggle room for high-risk borrowers, such as accepting credit scores below 500.

Eligibility requirements include:

  • Demonstrating your ability to repay the loan
  • A minimum down payment up to 20%
  • A maximum debt-to-income ratio of up to 55%

How to get a home loan with bad credit

Use the following list of tips as a resource to help you get a bad credit home loan.

  • Avoid applying for new credit. A new auto loan, credit card or personal loan application means you’ll have new inquiries on your credit reports, which can drop your credit score.
  • Dispute any credit report errors. Finding and disputing inaccurate information on your credit reports could improve your credit score and help lenders see you as a less risky borrower.
  • Pay your bills on time. Your payment history makes up the biggest chunk of your credit score at 35%, according to FICO. Making on-time payments can help boost your score and demonstrate your creditworthiness as a borrower.
  • Lower your outstanding debt load. Pay down your credit card and loan balances. Lenders don’t want to see that your income is stretched too thin to afford a mortgage. Keep your credit usage below 30% of your maximum credit limit across each of your accounts.
  • Don’t close any accounts. Closing old accounts, especially credit cards, shortens your overall credit history and can negatively impact your credit score.
  • Have your rent payments reported to the credit bureaus. As long as you’ve been maintaining an on-time rental payment history, having your rent payments reported to the bureaus may boost your score.
  • Make a larger down payment. A larger down payment can compensate for a lower credit score. Don’t completely drain your cash reserves, though. Keep three to six months’ worth of living expenses in a savings account for emergencies.
  • Pay for mortgage points. If you have the extra cash, consider buying mortgage points to lower your interest rate and overall loan costs. One point is equal 1% of your loan amount and can lower your rate by up to 0.25%.

Should you get a bad credit home loan?

Home loans for bad credit come with more risk for lenders, so you can expect to pay more as a borrower. Crunch the numbers with a mortgage calculator to help you determine whether to move forward with a bad credit mortgage or wait until your credit profile improves.

Here’s an example of how your credit score can affect your costs on a 30-year, fixed-rate mortgage:

 620 credit score760 credit score
Mortgage rate4.84%3.25%
Loan amount$200,000$200,000
Monthly payment
(Principal and interest)
$1,054.17$870.41
Total interest cost$179,501.82$113,348.55

As you can see, improving your score from “fair” to “very good” could amount to a mortgage payment that is nearly $184 less each month, saving you more than $2,200 each year and more than $66,000 in interest over the term of your mortgage.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.