Can You Buy a House with Bad Credit? Your 2026 Options

Short answer: yes.

Longer answer: yes, and more people do it than the internet would have you believe — but the version of “yes” you get depends almost entirely on which program you use, how your derogatory credit is documented, and whether anyone bothers to structure the file properly before it goes to underwriting.

I’ve closed loans for borrowers in the 520s. I’ve also told borrowers with 640 scores to wait 90 days, because those 90 days were worth $28,000 to them. Both were the right call. This guide explains how to tell which one you are.

What Counts as “Bad Credit” in 2026?

There is no official definition, but lenders operate on tiers, and the tier you land in determines your options more than the exact number does.

The credit tiers that actually matter for a mortgage

Range	Common label	What it means for a mortgage
800–850	Exceptional	Best pricing available
740–799	Very good	Effectively the same pricing as 800+
670–739	Good	Every program open; pricing gets meaningfully better above 700
580–669	Fair	FHA and VA territory; conventional possible above 620 but often costs more
300–579	Poor	FHA at 10% down, VA with the right lender, or manual underwriting

Per Experian’s FICO Score 8 distribution, 13% of Americans sit in the poor range and 16% in the fair range — roughly 29% of the adult population. That is not a fringe group. That is close to one in three people.

The national picture: a market splitting in two

FICO’s Spring 2026 Credit Insights report shows the national average FICO Score fell two points over the past year to 714, driven mainly by resumed student loan delinquency reporting and a modest rise in mortgage delinquencies. At the same time, a record 48.1% of consumers now score 750 or higher.

FICO calls this a K-shaped credit economy, and it describes exactly what I see in my pipeline: the top half of borrowers has never looked stronger, while the bottom half is getting squeezed. If your score dropped in the last 18 months, you have a lot of company — and, importantly, underwriters know why.

One number worth internalizing: borrowers who picked up a new student loan delinquency saw an average FICO drop of 62 points. If that is you, your score is not a reflection of your character or your capacity. It is a reflection of one reporting event, and it is fixable.

Two 2026 changes that may work in your favor

Lenders can now use VantageScore 4.0

This is the biggest structural change to mortgage credit scoring in nearly 30 years. On April 22, 2026, FHFA announced that Fannie Mae and Freddie Mac would allow approved lenders to use VantageScore 4.0 alongside Classic FICO, with the tri-merge requirement (all three bureaus) staying intact. Fannie Mae’s implementation page confirms the Selling Guide has been updated, with a limited lender rollout first; Freddie Mac is tracking the same transition. FICO Score 10T is approved for future use, with historical scores published in summer 2026.

Why this matters to you: the newer models consider data the Classic FICO models built in the 1990s simply cannot see — including rent payment history. VantageScore estimates roughly 5 million prospective buyers could benefit.

Two important caveats. First, this is a limited rollout — not every lender has it yet. Second, FHFA Director Pulte has been explicit that underwriting standards themselves have not changed. A new model does not manufacture creditworthiness; it just measures it differently. For some borrowers with thin files or strong rental histories, “differently” means “better.”

If you have been denied in the past 12 months on score alone, it is worth re-running your file. That is a five-minute conversation — book it here.

Medical debt: what actually happened

You may have read in early 2025 that medical debt was being removed from credit reports. That rule never took effect.

The CFPB finalized it in January 2025, and on July 11, 2025 a federal court in the Eastern District of Texas vacated it entirely in Cornerstone Credit Union League v. CFPB — with the Bureau itself joining the request. The CFPB’s own rule page confirms this. There is currently no federal ban on medical debt appearing on credit reports.

What does still protect you:

Voluntary bureau policies (in place since 2023): Equifax, Experian and TransUnion removed paid medical collections entirely, and exclude unpaid medical collections under $500, with a 365-day grace period before reporting.
State law: roughly 15 states have enacted their own restrictions on medical debt credit reporting.
FHA underwriting rules, which are more generous than the credit bureaus — covered below.

The Loan Programs That Actually Work with Bad Credit

This is the core of it. Your score does not determine whether you can buy; it determines which door you walk through.

FHA loans — the workhorse for damaged credit

The Federal Housing Administration insures loans made by approved lenders, and its rules live in HUD Handbook 4000.1. The credit tiers are simple:

580 or higher → 3.5% down
500–579 → 10% down
Below 500 → not eligible for FHA financing

For 2026, HUD set the FHA floor at $541,287 and the ceiling at $1,249,125 for a one-unit property, depending on your county.

The overlay problem — and why it is solvable

Here is what trips up most borrowers: HUD’s minimum is not your lender’s minimum. Individual lenders add their own stricter rules, called overlays, and plenty of large retail banks will not touch an FHA file below 620 — even though FHA itself permits 580.

This is why one buyer gets told “you don’t qualify” and an identical buyer down the street closes in 30 days. It is not the program. It is the lender. Working with someone who has access to multiple investors is not a marketing line here; it is the entire difference between yes and no.

What FHA actually costs

FHA is more forgiving, and you pay for that in mortgage insurance:

Upfront MIP: 1.75% of the loan amount (usually financed into the balance)
Annual MIP: 0.55% for most 30-year borrowers, per HUD’s rates in effect since Mortgagee Letter 2023-05
Duration: with less than 10% down, MIP stays for the life of the loan; with 10%+ down, it drops off after 11 years

Rule of thumb: about $46 per month per $100,000 borrowed.

The MIP is not a trap — it is a bridge. The standard play is to use FHA to get in the door, rebuild credit for 18–24 months while you own the asset, then refinance to conventional and drop the MIP.

VA loans — no minimum credit score at all

If you are a veteran, active-duty service member, or eligible surviving spouse, this is almost always your best option.

The VA sets no minimum credit score. Lenders set their own, commonly 580–620, but the program’s real test is different: residual income — the actual dollars left in your pocket after taxes, housing, and every debt payment. A file that would die on a conventional application can pass on VA if the residual income cushion is strong.

Add zero down payment and no monthly mortgage insurance, and the math is hard to beat. If you have VA eligibility and someone has steered you toward FHA, ask them why.

USDA loans — zero down in eligible areas

USDA guaranteed loans require no down payment in eligible rural and semi-rural areas — a broader map than most people assume, covering plenty of outer-ring suburbs. There is no hard program minimum, but 640 is the practical threshold for streamlined automated review; below that, you are looking at manual underwriting. Income limits apply.

Conventional loans — 620, but read the fine print

Conforming conventional loans generally require a 620 minimum. Technically that puts conventional financing within reach for a “fair” credit borrower. Practically, it is often the wrong choice below about 680, for one reason: private mortgage insurance is priced by credit score, and FHA’s MIP is not.

At a 640 score with 5% down, a conventional PMI factor can run 1.15% or higher annually. FHA charges 0.55% flat, regardless of score. Run both. Below roughly 680, FHA usually wins on monthly payment; above 700, conventional usually wins because PMI is cheaper and cancellable at 20% equity.

Manual underwriting — when a human reads your file

When a file cannot get an automated approval, it can be downgraded to manual underwriting, where an actual underwriter evaluates compensating factors rather than a scorecard. Under FHA rules, those factors include:

Verified cash reserves after closing
Minimal payment shock (your new payment is close to your current rent)
A documented 12-month history of on-time rent
Little to no discretionary debt
Residual income

Manual underwriting is slower and the DTI caps are tighter. It is also how a meaningful number of post-hardship borrowers actually get to closing.

Non-QM loans — the last resort, priced accordingly

Non-qualified mortgages sit outside agency rules: bank statement loans for the self-employed, asset-depletion loans, DSCR loans for investors, and programs that will look at scores in the 500s. Down payments typically start at 10–20% and rates run meaningfully above agency pricing.

I mention these for completeness, not as a recommendation. In most cases where a borrower is quoted a non-QM loan, an FHA or VA loan exists that they were never told about. Get a second opinion before you sign for a non-QM rate.

Program comparison at a glance

Program	Min. score	Min. down	Mortgage insurance	Best for
FHA	500 (10% down) / 580 (3.5%)	3.5%	1.75% upfront + 0.55%/yr	Scores 500–679
VA	None set by VA	0%	None (funding fee instead)	Any eligible veteran
USDA	None set; 640 typical	0%	Guarantee fee	Rural/suburban, income-limited
Conventional	620	3–5%	PMI, score-priced, cancellable	Scores 680+
Non-QM	Varies, often 500s	10–20%	Varies	Last resort

What Bad Credit Actually Costs You

Approval is one question. Price is another, and the price gap is real but smaller than most people expect.

Here are current average conventional 30-year rates by FICO score, sourced from Curinos and published by Experian, assuming a $350,000 mortgage:

FICO® Score	30-year rate	Monthly P&I
620	7.33%	$1,925
640	7.20%	$1,901
660	7.09%	$1,880
680	7.03%	$1,868
700	6.91%	$1,846
720	6.89%	$1,842
740	6.77%	$1,820
760	6.70%	$1,807
780+	6.61%	$1,790

For context, Freddie Mac’s Primary Mortgage Market Survey put the national 30-year average at 6.58% on July 23, 2026 — that survey assumes 20% down and excellent credit, which is why it sits at the bottom of the table above.

Three things stand out:

The full 620-to-780 spread is 0.72 percentage points — $135 per month, or about $48,600 over 30 years on this loan size. Significant, but not the six-figure catastrophe often quoted.
The damage is concentrated at the bottom. The gap between 760 and 780 is 0.09 points. The gap between 620 and 680 is 0.30 points. Points are worth far more when you are climbing out of the 600s than when you are polishing an already-good score.
Above 760, you are done optimizing. Chasing 800 buys you nothing on a mortgage.

Bankruptcy, Foreclosure and Short Sales: The Waiting Periods

A derogatory event is not permanent. Every program has a defined seasoning clock.

Event	FHA	VA	Conventional	USDA
Chapter 7 bankruptcy	2 yrs from discharge	2 yrs from discharge	4 yrs from discharge	3 yrs
Chapter 13 bankruptcy	12 mos of on-time plan payments + court approval	12 mos + court approval	2 yrs from discharge / 4 yrs from dismissal	12 mos
Foreclosure	3 yrs	2 yrs	7 yrs	3 yrs
Short sale / deed-in-lieu	3 yrs	2 yrs	4 yrs	3 yrs

Four practical notes:

Documented extenuating circumstances can shorten these. A one-time hardship outside your control — serious illness, death of a wage earner, job loss from a plant closure — can reduce the conventional foreclosure wait from seven years to three, typically with a 90% LTV cap. Divorce and general overspending do not qualify.
When bankruptcy and foreclosure overlap, the later date controls. If the Chapter 7 discharged in January but title did not transfer until April, your clock starts in April. This one detail catches people constantly.
FHA can treat a short sale as having no waiting period if you were current on all mortgage and installment debt in the 12 months before the sale.
The clock is not the whole test. Seasoning gets you eligible. Re-established credit gets you approved.

Collections, Charge-Offs and Judgments — Where Most Buyers Get It Wrong

This is the single most misunderstood area in bad-credit lending, and it is where an experienced originator saves you the most money.

You usually do not have to pay off collections

Under HUD Handbook 4000.1, borrowers are not required to pay off collection accounts or charge-offs to qualify for an FHA loan. Charge-offs are not included in your DTI at all.

The $2,000 rule

If your non-medical collection balances total $2,000 or more, the lender must do one of three things: verify the debt was paid in full at or before closing, document a payment plan and count that payment in your DTI, or count 5% of the outstanding balance as a monthly obligation.

That last option is the default, and it is brutal:

Total non-medical collections	Phantom monthly debt (5%)
$3,000	$150
$6,000	$300
$12,000	$600

A borrower earning $6,500/month with $12,000 in old collections loses roughly $77,000 of purchasing power to a debt they are not actually paying. Negotiating a written payment plan at, say, $75/month instead of the imputed $600 recovers most of it. That is a phone call, not a miracle.

Medical collections are treated differently

FHA excludes medical collections from the $2,000 threshold and from the DTI calculation entirely — regardless of balance or age. HUD’s reasoning is sound: a $15,000 emergency room bill tells an underwriter nothing about whether you will pay your mortgage.

If your credit damage is medical, you may be in far better shape for an FHA loan than your score suggests.

Judgments and tax liens

Different rules. Outstanding judgments generally must be paid in full or placed on a court-approved payment plan with at least three consecutive payments already made and documented.

A warning: paying off old collections can lower your score

Counterintuitive but true. On the Classic FICO models mortgage lenders use, paying a collection often does not remove it and can reset its recency, temporarily dropping your score right when you need it stable.

Never pay a collection during a mortgage transaction without asking your loan officer first. I have watched a well-intentioned $1,200 payment cost a borrower a rate tier.

Four Real 2026 Scenarios

Anonymized composites from files I worked this year.

Case 1: A 592 score and $9,400 in collections

Profile: Single buyer, $71,000/year, 592 middle score, $9,400 in collections (of which $6,100 was medical), $18,000 saved. Two lenders had already declined her.

What was actually wrong: both prior lenders were running her through 620-minimum overlays, and neither had separated the medical from the non-medical collections. Her non-medical total was $3,300 — above the $2,000 threshold, generating $165/month of phantom debt.

What we did: moved the file to an investor with a true 580 FHA floor. Negotiated a written $50/month payment plan on the non-medical collections, replacing the imputed $165. Left the $6,100 in medical collections completely alone, because FHA does not count them.

Result: approved at 3.5% down. Closed in 34 days. She paid nothing toward the medical debt.

Lesson: two declines meant two wrong lenders, not one unqualified borrower.

Case 2: A veteran two years past Chapter 7

Profile: Army veteran, $88,000/year, Chapter 7 discharged 25 months prior, 604 score, no down payment saved.

The file could not get an automated approval — the bankruptcy was too recent and the score too thin. It went to manual underwriting, where the VA’s residual income test governs rather than a rigid DTI grid. He had re-established credit with a secured card and an auto loan, 24 months of clean payment history since discharge, and rent paid on time throughout.

Result: VA loan, zero down, no monthly mortgage insurance, approved manually on residual income.

Lesson: the VA does not have a minimum credit score. Lenders do. Those are different problems with different solutions.

Case 3: A 640 score who was quoted the wrong program

Profile: Buyer at 640, $400,000 target purchase, comparing an FHA quote against a conventional quote from a big-box lender.

	FHA, 3.5% down	Conventional, 5% down
Loan amount	$392,755 (incl. financed UFMIP)	$380,000
Principal & interest	$2,639	$2,579
Mortgage insurance	$177 (0.55% MIP)	$364 (1.15% PMI at 640)
Monthly total	$2,816	$2,944

The conventional loan had the lower rate and the higher payment, because PMI at a 640 score is more than double FHA’s flat MIP. $128/month, or $1,536 a year, purely from program selection.

Lesson: below roughly 680, always price both. The lower interest rate is not automatically the cheaper loan.

Case 4: The borrower I told to wait

Profile: 610 middle score, $350,000 target loan, three maxed credit cards, no derogatory events.

He could have closed at 610. I ran the numbers instead: three cards at 94% utilization, all with balances that could be paid down with $6,800 he already had sitting in savings.

We paid the cards down to under 10% utilization, waited for the statements to report, and ran a rapid rescore. Five weeks later his middle score was 689 — from the 620 tier into the 680 tier.

At the Curinos rates above, that is $2,407/month versus $2,336 — $71 per month and $25,568 over the life of the loan, for five weeks of patience and money he already had.

Lesson: sometimes the highest-value thing a lender can tell you is “not yet.” Ask any originator what waiting would be worth. If they cannot answer with a number, find another one.

How to Raise Your Score Before You Apply

Ranked by speed.

The 30-day levers

Pay down revolving balances. Utilization is roughly 30% of a FICO score and it updates monthly — the fastest legitimate lever that exists. Target under 30%, ideally under 10%. Note it is per card and overall: one maxed card hurts even if your total utilization looks fine.
Ask about a rapid rescore. Once balances are paid, your lender can request updated data from the bureaus in days rather than waiting a full cycle. You cannot order this yourself — it goes through the lender.
Pull all three reports and dispute errors. Free weekly at AnnualCreditReport.com, the only federally authorized source. Errors are common, and a single misreported late payment can cost 40+ points.
Do not close old credit cards. Closing them shrinks your available credit and raises utilization.

The 90-day-plus levers

Become an authorized user on a well-aged, low-utilization card belonging to someone who trusts you.
Bring any past-due account current. Payment history is about 35% of the score; the difference between 29 and 30 days late is enormous.
Open a secured card or credit-builder loan if your file is thin. Thin-file borrowers are often better served by adding one clean tradeline than by any other move.
Address student loan delinquencies with your servicer. Given that a new delinquency costs an average 62 points, curing one is often the single highest-value action available.

What not to do while you are shopping

Do not open new credit — no car loans, no furniture financing, no store cards at the register.
Do not close accounts.
Do not pay collections without asking your loan officer first (see above).
Do not pay a “credit repair” company to dispute accurate information. Everything they legitimately do, you can do free.
Do not let your reports go unpulled. Multiple mortgage inquiries within a 14–45 day window count as a single inquiry for scoring purposes — shopping lenders does not hurt you.

Down Payment Assistance: Almost 2,800 Programs and Rising

Bad credit and thin savings usually travel together, so this matters.

Down Payment Resource’s Q2 2026 Homeownership Program Index identified 2,746 homeownership programs nationwide as of July 1, 2026 — a new survey high, up 67 programs from Q1. Of those, 2,114 (77%) are active and funded right now. Grant programs grew 6% during the quarter to 234.

Two things most buyers do not know:

Roughly 38% of programs are available to repeat buyers, not just first-timers.
Assistance typically lowers loan-to-value by about 6 percentage points, with an average benefit near $18,000 per household — which can also mean better pricing, since LTV affects your rate.

Most DPA programs pair with FHA financing and carry their own credit minimums, commonly 620–640. Some require a homebuyer education course. All of them are administered locally, which is why a lender licensed in your state and familiar with your county’s programs is worth more than a national call center.

Should You Buy Now or Fix Your Credit First?

Honest answer: it depends on the size of the gap, and it is a math question rather than a philosophical one.

Fix your credit first if:

You are within 20–40 points of a better pricing tier, especially crossing 620, 660 or 680
The fix is mechanical — paying down revolving balances, curing a delinquency, disputing an error
You can realistically do it in 30–90 days

Buy now if:

The gap requires a year or more of rebuilding
You have VA eligibility (score matters far less)
Your credit damage is medical (FHA largely ignores it)
Waiting means continued rent with no equity while prices move

On that last point: NAR reported a median existing-home price of $440,600 in June 2026, up 1.8% year over year and the 36th consecutive month of annual price increases. Waiting a year to gain 30 points may cost you more in purchase price than it saves you in rate.

And the point people forget: a rate is not permanent. Buy with the credit you have, rebuild while you own the asset, refinance when you qualify for better. You cannot refinance a purchase price you never made.

Frequently Asked Questions

What is the lowest credit score that can buy a house in 2026?

500, using an FHA loan with 10% down. At 580 or higher, the FHA down payment drops to 3.5%. Below 500 there is no FHA-insured path. VA loans set no minimum at all, though individual lenders commonly require 580–620.

Can I get a mortgage with collections on my credit report?

Yes. FHA does not require you to pay off collections or charge-offs to qualify. If non-medical collections total $2,000 or more, the lender must either verify payoff, document a payment plan, or add 5% of the balance to your DTI. Medical collections are excluded from that threshold entirely.

How long after bankruptcy can I buy a house?

Two years from a Chapter 7 discharge for FHA and VA, four years for conventional. For Chapter 13, FHA and VA can allow financing after 12 months of on-time plan payments with court or trustee approval. Documented extenuating circumstances can shorten these.

Will paying off my collections raise my credit score?

Not necessarily, and it can lower it temporarily. The Classic FICO models used in mortgage lending often keep the collection on file after payment while resetting its recency. Talk to your loan officer before paying anything during a transaction.

How much more does a mortgage cost with bad credit?

Using Curinos data published by Experian for a $350,000 loan, a 620 score averages 7.33% ($1,925/month) versus 6.61% at 780 ($1,790/month) — about $135 per month, or roughly $48,600 over 30 years. The gap is widest at the bottom of the range; above 760 the difference is negligible.

Does the new VantageScore 4.0 rule help borrowers with bad credit?

It can. FHFA approved VantageScore 4.0 for Fannie Mae and Freddie Mac loans in April 2026, and the newer models consider data Classic FICO cannot — including rent payment history. VantageScore estimates about 5 million prospective buyers could benefit. It is currently a limited rollout, so not every lender offers it, and underwriting standards themselves have not changed.

Is medical debt still on my credit report in 2026?

Yes, in most cases. The CFPB rule that would have banned it was vacated by a federal court in July 2025 and never took effect. Paid medical collections and unpaid ones under $500 are excluded by voluntary bureau policy, and about 15 states have their own restrictions. Separately, FHA underwriting excludes medical collections regardless of balance.

Can I get down payment assistance with bad credit?

Often yes. Of the 2,746 programs tracked by Down Payment Resource in Q2 2026, most pair with FHA financing and set minimums around 620–640. Many also serve repeat buyers, not only first-timers.

Should I use a credit repair company?

Generally no. Anything a legitimate credit repair company does — disputing inaccurate items, requesting goodwill adjustments — you can do yourself at no cost. No one can lawfully remove accurate, timely negative information. If a company promises otherwise, that is your signal to walk away.

Bad credit is a solvable problem far more often than it is a permanent one. In the four cases above, the difference between “declined” and “closed” was never the borrower’s score — it was lender overlays, program selection, how collections were documented, and whether anyone bothered to check what 30 days of work would be worth.

I will tell you which one you are, including if the answer is “wait 90 days.” That conversation is free and takes about 20 minutes.

Schedule a consultation with Jeff Aronheim →

This article is for educational purposes and does not constitute a commitment to lend, an offer of credit, or legal or financial advice. Rates, program guidelines and loan limits are current as of July 2026 and subject to change. All loan scenarios are illustrative composites; individual results depend on credit, income, property and program eligibility. Lender overlays vary. Equal Housing Opportunity.

Can You Buy a House with Bad Credit? Your Options in 2026