A 588 credit score will get you a mortgage. It just gets you a more expensive one, and that fact is what most advice about bad credit skips past. It’s easier to say “fix your score first” than to explain what a 588 actually qualifies for today, what it costs over thirty years, and how to judge whether waiting is worth the delay.
Home loans for bad credit exist in every category, from government-backed FHA products to portfolio loans written by small regional banks. The work is matching your file to the right program and pricing it honestly against the alternative of waiting.
What Counts as Bad Credit to a Mortgage Lender
Every loan program draws its own minimum, and then individual lenders draw theirs a little higher. FICO scores move mortgage pricing at nearly every 20-point step, so a 620 is not the same loan as a 660 even when both get approved.
Roughly where the floors sit right now:
- FHA: 580 for the 3.5% down program. Scores from 500 to 579 can qualify with 10% down, though most lenders won’t fund below 580.
- VA: No statutory minimum, but nearly every VA lender sets one at 580, sometimes 620.
- USDA: Usually 640, with exceptions down to 580 when the rest of the file is strong.
- Conventional: Fannie Mae and Freddie Mac require 620. Most banks overlay that to 640 or higher.
- Non-QM and portfolio loans: Outside government rules entirely. Some fund borrowers at 550 with 20% down.
A score in the 500s doesn’t close the door. It changes the terms of the conversation, and this honest playbook for buying a house with bad credit covers how that plays out at each score level.
The Loan Programs That Still Say Yes
FHA: The Most Forgiving Mainstream Option
FHA is the workhorse for buyers with damaged credit. The 3.5% down payment gets the attention, but the real advantage is flexibility on what caused the damage. A Chapter 7 bankruptcy discharged two years ago, a collection paid off last spring, a medical judgment now resolved: FHA has written rules for each, and those rules leave room for a human underwriter to approve what an automated system flagged.
The cost is mortgage insurance. You pay 1.75% of the loan amount upfront, usually financed into the balance, plus an annual premium of about 0.55% paid monthly. On a $290,000 loan that’s roughly $133 a month for the life of the loan unless you refinance later. A step-by-step 580 credit score playbook runs the full math on that trade-off.
VA Loans: Start Here If You’ve Served
VA loans beat FHA on nearly every measurement. No down payment, no monthly mortgage insurance, and rates that typically run a quarter to a half point below conventional. There’s a funding fee of 2.15% for first-time use with nothing down, waived entirely for veterans with a service-connected disability. The credit review is lenient, but individual lenders still set their own floor.
USDA Loans: Location Does Most of the Work
These are for homes in eligible rural areas, which is the real hurdle, not your credit. A 640 score with no down payment is standard, and the guarantee fee is modest at 1% upfront and 0.35% annually. Household income limits apply, and the property has to sit inside an eligible map.
Non-QM and Portfolio Lenders
Banks that hold loans on their own books can write almost any rule they want. Expect 15% to 25% down and a rate one and a half to three points above conventional. Worth it if you’re self-employed with heavy write-offs or just outside every agency guideline. Expensive if you have other options.
What a Low Score Actually Costs
The spread between credit tiers is remarkably consistent across lenders. On a $280,000 thirty-year fixed loan, here’s what buyers in different bands were quoted:
- 760+ score: 6.15%, about $1,706 a month
- 700: 6.4%, about $1,751
- 660: 6.65%, about $1,797
- 620: 7.05%, about $1,872
- 580: 7.5%, about $1,958
The gap between a 760 and a 580 comes to $252 a month, or roughly $90,700 over the life of the loan. Add FHA mortgage insurance at $133 a month and the real difference clears $136,000. The higher-score buyer often avoids mortgage insurance altogether with 20% down, which widens it further.
Down Payments and the Costs People Forget
The down payment is the one variable a low score can’t take from you, and it’s your strongest lever. Putting 10% down instead of 3.5% can turn a marginal file into an approvable one, because lenders read it as commitment and a smaller loan lowers your debt-to-income ratio.
Be careful with the number you’re actually saving toward. On a $300,000 FHA purchase, the 3.5% down is $10,500. Closing costs run 2% to 5% on top, and you’ll need prepaid taxes and insurance at the table. Realistic cash to close lands near $21,000 to $26,000. A detailed plan for how much to save before buying a home helps, and so does accounting for the smaller line items, which is exactly what this rundown of 20 expenses every buyer should budget for does, with real figures attached to each.
When Manual Underwriting Saves the Deal
Automated underwriting systems return one of three verdicts: Approve/Eligible, Refer/Eligible, or Refer with Caution. A “Refer” is not a denial. It means the system wants a person to look at the file.
FHA allows lenders to manually downgrade and underwrite by hand, and that’s where compensating factors matter. Twelve months of on-time rent receipts. Cash reserves covering three months of payments. A long, steady employment history in the same field. A small gap between your current rent and the proposed mortgage payment, which underwriters call minimal payment shock. Stack three or four of those and a 560 can be approved at terms that look like a 640.
Debt-to-Income and the Salary You Actually Need
Credit score is half the story. Debt-to-income is the other half, and a bad score with a 28% DTI often beats a good score with a 50% one.
Run a real example. A $300,000 house with 3.5% down at 7.5% gives you principal and interest of about $2,024. Property taxes and insurance add roughly $500, FHA mortgage insurance $133. Call it $2,660 a month. To keep that at 43% of gross income, near FHA’s ceiling without heavy compensating factors, you need about $6,180 a month, or $74,000 a year.
That number swings a lot based on local taxes and whether you carry a car payment. Working out what salary you need to buy a home in 2026 before you tour anything will save you from falling for a house you can’t finance.
Mistakes That Sink Approvable Applications
Most bad-credit denials happen after pre-approval, in the weeks between the accepted offer and the closing table.
- Opening a store card for new furniture. Any fresh inquiry or account triggers a rescore at the worst possible moment.
- Depositing cash without a paper trail. Underwriters have to source deposits over a set threshold, and cash from a side job doesn’t count.
- Switching jobs mid-escrow, even for more money, if the new role is probationary or in a different field.
- Paying off old collections without asking first. Sometimes it helps; sometimes it resets a tradeline the underwriter had already excused.
- Co-signing a loan for a relative while your file is in underwriting.
A Realistic Twelve-Month Plan
If you’re sitting at a 560 and want the best terms available to you, twelve months of focused work usually moves the needle more than people believe.
- Pull all three bureau reports and dispute anything inaccurate. Errors hit subprime files hardest.
- Get every revolving balance under 10% of its limit. It’s the fastest score lever there is, often worth 40 to 60 points in two billing cycles.
- Leave old accounts open. Length of credit history matters, and closing a card you’ve held nine years hurts.
- Target 580 for FHA, then keep going. Every 20 points past that cuts your rate.
- Save toward the full cash-to-close figure, not just the down payment.
- Talk to a broker who regularly closes FHA loans for borrowers under 620 before you talk to your bank. Not every loan officer will mention that manual underwriting exists.
Plenty of buyers close with a score in the 500s every month. They simply pay for the privilege, and the ones who come out ahead ran the numbers first and knew exactly what they were buying.