Buying a House with Bad Credit — What Each Score Actually Opens

Yes, in most cases. A lower credit score means a higher interest rate and monthly payment. FHA mortgage insurance premiums are the same regardless of credit score. The rate premium for bad credit is real but manageable, and refinancing to a lower rate once your credit improves is a common strategy.

A Non-QM loan falls outside the Consumer Financial Protection Bureau’s qualified mortgage guidelines, so individual lenders set their own credit and income rules. For bad credit buyers, Non-QM programs are often the only path when FHA is not available — for example, a self-employed borrower with low reported income or a property that does not meet FHA rules. Non-QM rates are higher than FHA rates, but having a loan option matters more than rate when conventional programs are closed.

Yes. Mortgage-World.com is a licensed mortgage broker in New Jersey, Connecticut, and Florida (NMLS #1630225, FL License MLB 1987). We work with wholesale lenders and offer FHA programs at 500 FICO, Non-QM bank statement loans, DSCR loans, and asset-based programs. We match you to the lender with the best overlay for your credit situation at no extra charge.

FHA requires two years after Chapter 7 bankruptcy and three years after foreclosure. Conventional loans require four years post-bankruptcy and seven years post-foreclosure. Non-QM lenders may allow as little as one day out of bankruptcy or foreclosure depending on the program. Each clock starts at its own event: a bankruptcy at the discharge date rather than the filing, a foreclosure at the trustee’s deed.

A person reads your file instead of a scorecard. Below 580 that is not optional – the automated system will not return an approval, so the file goes to a human either way. What they are looking for is evidence that the score is behind you rather than around you: rent or mortgage paid on time, money left in the account after closing, time in the same job, a debt load that leaves room. It is slower than an automated approval and it asks for more paperwork, and it is also the reason a 520 file can close at all.

It depends whether the score is close to a threshold. Going from 560 to 580 changes your down payment from 10% to 3.5%, which on most purchases is worth more than a few months of waiting. Going from 620 to 640 changes very little on an FHA file. So the honest answer is to price both: what you can buy today, and what you could buy after the specific fix that moves you over the next line. If those two numbers are close, buy. If they are not, the wait has a purpose. One thing worth checking before you start: if you are inside an FHA waiting period, the clock matters more than the score. Two years past a Chapter 7 discharge with credit rebuilt since gets you an automated approval. Twelve months is possible but only by hand, only with documented extenuating circumstances, and only with an underwriting manager signing off. It is a real route and it is not the usual one. Foreclosure runs three years from the trustee’s deed.

Follow the score first, then the income. Under 580 with money for 10% down, FHA is usually the only agency route and it will be manually underwritten. At 580 or above, FHA at 3.5% down is the common answer. At 600 or above with self-employment or income that does not show well on a return, bank statement and asset programs open up and stop caring much about the score. What rules programs out is more often the documentation than the number.

The underwriting does, and it is worth planning for. A manually underwritten file moves at the speed of a person reading it, and every gap in the paperwork costs a day rather than a second. Two things shorten it: having the compensating factors documented before anyone asks – twelve months of rent receipts, statements showing the reserves are seasoned, a letter explaining anything that looks odd – and not going under contract until the file is assembled. Bad credit is rarely what kills a deal. A slow file against a tight closing date is.