Bad credit doesn’t have to be a lifetime penalty. As you work your way back from a financial setback, you may think buying a home is impossible. However, with the right loan product and a knowledgeable lender, you may have more options than you imagine.
But as with any consumer financial service, mortgage providers range from excellent to “won’t go there again.”
Yahoo Finance deploys stringent analysis of government data with a consumer’s view of a lending experience to hone the mortgage lender universe down to the highest-rated best. Here are our well-vetted choices for mortgage lenders for borrowers with bad credit for January 2025.
In this article:
The Yahoo view: Pennymac excels at government mortgage lending, which is a go-to solution for prospective home buyers with bad credit.
Stars: 3.80
Read our full Pennymac mortgage review
Key benefits:
Need to know:
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On its website, Pennymac mortgage rates show FHA loan rates for borrowers with a credit score above the FHA minimum of 580. Of course, your credit score will determine your mortgage rate, and such advertised rates are only estimates.
Read more: Believe it or not, you can get a mortgage with 1% down
The Yahoo view: AmeriSave ranks high for customer satisfaction and has low fees on FHA loans. That’s a perfect combination.
Stars: 3.60
Read our full AmeriSave Mortgage review
Key benefits:
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Ranks as a top-five lender in the latest J.D. Power mortgage satisfaction survey.
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Doesn’t charge an origination fee on FHA loans.
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According to a Yahoo Finance analysis, AmeriSave offered much-lower-than-median mortgage rates to borrowers in 2023.
Need to know:
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It does not offer mortgage lending in New York state but provides home loans in 49 other states.
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A credit score of 600 is the minimum FICO score for FHA loans issued by AmeriSave.
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Unfortunately, the lower interest rates mentioned above came with much-higher-than-average loan fees.
Read more: 9 options for refinancing your mortgage with bad credit
The Yahoo view: When you have a thin credit file or no credit score, AmeriHome can utilize expanded qualifying standards that go beyond the usual.
Stars: 3.60
Read our full AmeriHome Mortgage review
Key benefits:
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By considering bank statements and payment history, alternative credit criteria can help borrowers who don’t fit standard underwriting measures. It’s helpful for retirees, the self-employed, and borrowers without regular credit profiles.
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Offers deep learning resources for home buyers making their first purchase.
Need to know:
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Does not underwrite loans in Hawaii, Massachusetts, or New York.
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Does not offer second mortgages for home equity access.
Learn more: Can you buy a house with no credit? Yes — here’s how.
The Yahoo view: Flagstar is a long-time FHA lender that offers mortgage refinancing solutions for borrowers with modest incomes and lower credit scores.
Stars: 3.50
Read our full Flagstar Bank mortgage review
Key benefits
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Flagstar Bank mortgage offers all three major government refinancing loan programs: FHA, USDA, and VA.
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Borrowers without Social Security numbers may qualify for Flagstar’s Individual Tax Identification Number (ITIN) loan program.
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A handy tool allows you to put in your credit score range for a more accurate mortgage rate estimate.
Need to know
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While Flagstar originates home loans in all 50 states, it only has branch locations in nine (Arizona, California, Connecticut, Florida, Michigan, New Jersey, New York, Ohio, and Wisconsin).
Dig deeper: 9 options to refinance a mortgage with bad credit
loanDepot
The Yahoo view: In a real estate market where buyers are looking for an edge to win over skeptical sellers, loanDepot claims to close deals faster than the norm.
Stars: 3.40
Read our full loanDepot mortgage review
Key benefits:
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Claims to close loans up to 50% faster than the industry average.
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Using an affiliated real estate agent can lead to a $3,500 cash bonus at closing.
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First-time home buyers may also qualify for a $1,000 lender credit.
Need to know:
The Yahoo view: CMG Financial earns our highest score in the affordability category, our measure of mortgage offerings. CMG doesn’t offer home equity loans or a handful of niche loan products, though.
Stars: 3.40
Read our full CMG Financial mortgage review
Key benefits:
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Has a broad menu of loan products, including all government loans, which mainly cater to underserved households.
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Ranked among Yahoo Finance’s best USDA lenders, an attractive solution for rural home buyers.
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Offers a 1% down payment program to eligible borrowers.
Need to know:
The best mortgage lenders for bad credit borrowers will:
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Work with state housing assistance programs.
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Offer grants to apply to the down payment and closing costs.
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Help you understand mortgage terms and the loan process.
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Guide you through the completion of a loan application.
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Offer alternative credit qualification that considers payment histories of rent and utilities.
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Explain how long the loan approval process takes and when you can expect to close the loan.
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Offer a full range of government home loans and explain the benefits and drawbacks of each.
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Understand and encourage you to shop multiple lenders.
Yahoo Finance tip: Government loans may require a minimum credit score to buy a house; however, lenders often establish their own qualification standards. Called “overlays,” these added-on eligibility factors can include a higher minimum credit score. Interest rates also vary among lenders according to their underwriting standards. Take the time to compare multiple loan offers from different lenders.
Dig deeper: Government home loans — Definition, types, and requirements
For most Americans of modest means, the best loan program is a mortgage insured by the FHA. With easier credit hurdles and built-in low down payments, FHA loans have helped millions of borrowers with credit issues buy a home. You only need a 580 credit score with a 3.5% down payment or 500 score with 10% down.
Learn more: What is an FHA loan?
In addition to FHA loans, the best lenders for bad credit borrowers will also offer two other popular loan options.
If you have a military connection, you should look into a VA mortgage. Backed by the Department of Veterans Affairs, VA loans usually require no down payment and have flexible credit qualifications.
Read more: How a VA loan works
For loans in rural and suburban areas, USDA loans can be a good choice for aspiring homeowners with bad credit. USDA loans are aimed at low- and moderate-income households and have lenient credit score minimums.
Learn more: How do USDA loans work?
When mortgage rates move lower, you may be interested in refinancing your mortgage to swap your old home loan with a newer, more affordable mortgage.
For borrowers with bad credit, the FHA Streamline Refinance may be their best option. For these loans, the FHA doesn’t require lenders to consider credit score, loan-to-value or other standard lending factors. The thinking is: If you get a lower interest rate, you’ll likely be better able to make your monthly payment. However, remember, individual loan providers can have their own lending standards.
With less paperwork, no appraisal requirement, and a faster turnaround from application to decision, a Streamline Refi gets you a lower interest rate as quickly as possible.
There will still be closing fees, and you must be current on payments to qualify.
VA and USDA loans also offer Streamline refinancing, though particulars may vary between each program.
The VA streamline refinance is called IRRRL (and yes, it’s pronounced “Earl”). That’s stands for interest rate reduction refinance loan. Your original Certificate of Eligibility will qualify you. You may also need to pay another funding fee.
The USDA streamlined refinance is available to homeowners even if the savings are as little as $50 per month. Income limits still apply.
Dig deeper:
Over time, as you make those monthly payments over the years, you’ll begin to build equity in your home. That’s a combination of the debt you’ve paid down combined with the value your home has gained.
You can tap into that locked-in worth by taking out a cash-out refinance. This is a new loan that combines what you still owe with the money you take out.
While the FHA and VA allow cash-out refinancing, you cannot complete a cash-out refi on your USDA loan.
Learn more:
Getting a mortgage is rarely easy, whether you have good or bad credit. Papers — or pixels representing papers — fly back and forth. You have to prove how much money you make and document just about everything.
If you have bad credit, it may seem practically impossible to reach the finish line — called closing on a house.
Stay cool. Don’t let the little setbacks that are bound to happen sap your patience.
Most importantly, talk to more than one lender. You might be surprised how different they can be. Talk to three or four lenders and apply for a mortgage preapproval. If this preliminary application is accepted, you’ll receive a Loan Estimate, showing the loan terms and interest rate you qualify for. This is not a final approval.
Closely review all of the fees. Negotiate those that you can. Understand how much your monthly payment will be, including taxes and insurance. Ask questions and make sure you understand the answers at each step of the loan process.
Getting a home loan is a big deal. Don’t rush it.
Read more: How long does it take to buy a house?
We considered the following mortgage lenders for our best-of list for bad-credit borrowers, but they weren’t quite as strong as our top picks:
Even though these lenders didn’t quite make the list this time, you might still consider any of them. Read our individual mortgage lender reviews to learn more about each company.
One downside of having bad credit: Lenders price in the risk they’re taking with a higher interest rate. That’s why talking to more than one lender is so important. Each mortgage provider has its own lending and pricing procedures. One lender may want your business more than another and offer you a better mortgage rate.
A score below 620 is the dividing line between a conventional loan and most government loans. FHA loans can serve borrowers with credit scores as low as 500. The higher your score and the greater your down payment, the better your loan terms will likely be.
Yes. In addition to a higher mortgage interest rate, you will likely pay mortgage insurance premiums and perhaps additional closing costs.
Yes. Many lenders work with state and local housing assistance programs to obtain grants, vouchers, and other concessions for borrowers with bad credit. Ask each lender you speak to how they can help you find assistance programs. You can also use this NCHSA tool to find housing assistance and finance agencies near you.
Methodology:
Yahoo Finance reviews and scores mortgage lenders with quintile scoring in five primary categories: 1) Interest rates. Using 2023 Home Mortgage Disclosure Act data comprised of 10 million home loan applications, we score mortgage lenders on issued mortgage rates below or above the annual median of reporting lenders. 2) Affordability. A measure of loan product availability and the willingness of a lender to offer government-backed loans, low down payments, down payment assistance, and consideration of nontraditional credit. 3) Loan costs. HMDA data is again analyzed, and lenders are rated based on total loan costs compared to the annual median. 4) Rate transparency. The ability of a website user to obtain a mortgage interest rate estimate. We score lenders based on whether rates are enhanced with discount points or high credit score requirements, disclaimers revealing rate assumptions, sample advertised rates, and whether adjustable or no discount point rate estimates are available. 5) Online features. An analysis of the educational material, calculators, and additional resources available to users.
Review of Nationwide Multistate Licensing System (NMLS) data on regulatory actions can trigger a penalty to the score of any lender with a consumer mortgage-related administrative or enforcement action within the past five years.
Advertisers or sponsorships do not influence ratings.
Editorial disclosure for mortgages:
The information in this article has not been reviewed or approved by any advertiser. The details on financial products, including interest rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the lender’s website for the most current information. This site doesn’t include all currently available offers.
To select the finalists for the best lenders for bad credit, Yahoo Finance filtered loan providers who 1) offered a full selection of government loans, which typically offer easier credit qualifying, 2) lenders who considered alternative credit, 3) lenders who offered generous down payment and closing costs assistance, and 4) lenders highly-rated for customer service. Additionally, all lenders considered were required to dedicate a lending volume of 20% or more to FHA loans.
This article was edited by Laura Grace Tarpley.
