Yes, you can get a home loan with bad credit — but the lender pool is smaller, the rates are higher, and preparation matters more than it does for borrowers with clean files. Knowing which lender types accept adverse credit, what specific criteria they apply, and what you can do to strengthen your position before applying is the difference between a wasted application and a mortgage offer.

What "Bad Credit" Actually Means to a Lender

The phrase "bad credit" covers a wide range of situations, and lenders treat them very differently. Understanding where you fall on that spectrum is the first step to identifying which products are open to you.

The types of adverse credit event lenders see

  • Missed or late payments — one missed payment on a utility bill is treated very differently from six months of missed mortgage payments.
  • Defaults — a formal record that a creditor has closed an account because you stopped paying. The more recent and the higher the balance, the heavier the impact.
  • County Court Judgements (CCJs) / US judgements — court orders requiring repayment of a debt. Satisfied CCJs (paid in full) are viewed more favourably than unsatisfied ones.
  • Individual Voluntary Arrangements (IVAs) / Chapter 13 bankruptcy — formal insolvency arrangements. Most mainstream lenders will not touch these until they are discharged, and often not for several years after.
  • Bankruptcy / Chapter 7 — the most serious event on a credit file. Mainstream lending typically requires three to six years of clean history post-discharge, at a minimum.
  • Debt management plans (DMPs) — informal arrangements with creditors. Some lenders accept these if all payments are being made on time within the plan.
  • Repossession — having a property repossessed is one of the most serious adverse events, and many specialist lenders impose waiting periods of three to six years or more.

How lenders assess severity

Lenders look at four things: the type of adverse event, its age, whether it is satisfied or outstanding, and the total amount involved. A single, satisfied default from five years ago on a mobile phone account is a very different risk profile to three unsatisfied defaults from the last twelve months totalling tens of thousands of pounds or dollars.

Who Are the Lenders That Accept Bad Credit?

Not all lenders assess risk the same way, and the market is genuinely segmented.

High-street and mainstream lenders

Major banks and building societies — Barclays, Nationwide, HSBC in the UK; Chase, Wells Fargo, Bank of America in the US — use highly automated underwriting and apply tight credit score floors. They are generally not the right starting point for borrowers with recent adverse credit. Some will consider minor blips (a single missed payment more than two years ago), but their criteria are rigid and a declined application leaves a hard search on your file.

Specialist and adverse-credit lenders

In the UK, lenders such as Pepper Money, Kensington Mortgages, Together Money, and Bluestone Mortgages specifically underwrite for borrowers with credit problems. They typically charge higher rates to price the additional risk, and they apply more nuanced criteria — looking at the full picture rather than running a hard score cut-off. These lenders generally operate through intermediaries (brokers) rather than directly with the public.

In the US, non-QM (non-qualified mortgage) lenders occupy a similar space. Non-QM loans do not conform to the Consumer Financial Protection Bureau's (CFPB) ability-to-repay qualified mortgage standards, which allows lenders to use more flexible underwriting. Examples of non-QM product types include bank statement loans, asset depletion loans, and credit event loans — each designed for borrowers who do not fit the standard template.

Government-backed loan programmes (US)

The US has several federally backed programmes that open mortgage access to borrowers who cannot qualify for conventional financing:

FHA loans (Federal Housing Administration, HUD) FHA loans are arguably the most important product for bad-credit borrowers in the US. The federal government insures the loan, which reduces the lender's risk and allows more flexible underwriting.

  • Credit score 580 or above: minimum 3.5% down payment (illustrative — verify at hud.gov).
  • Credit score 500–579: minimum 10% down payment (illustrative — verify at hud.gov).
  • Borrowers below 500 are generally not eligible for FHA insurance.
  • All FHA loans require mortgage insurance premiums (MIP) — both an upfront premium and an annual premium, which adds to the monthly cost.

VA loans (Department of Veterans Affairs) Available to eligible veterans, active-duty service members, and surviving spouses. The VA does not set a minimum credit score, though individual lenders apply their own overlays (commonly 580–620). No down payment is required in most cases, and there is no private mortgage insurance — making this potentially the best product available if you qualify. Check eligibility at va.gov.

USDA loans (US Department of Agriculture) For eligible rural and some suburban properties. The USDA guarantees the loan and does not set a firm minimum credit score, but lenders typically require 640 or above for automated underwriting. Lower scores may be considered through manual underwriting. Check eligible areas and income limits at usda.gov.

Credit unions and community development financial institutions (CDFIs)

Credit unions are member-owned and typically apply more flexible underwriting than commercial banks, particularly for members with an established relationship. CDFIs are specialist lenders certified by the US Treasury's CDFI Fund to serve underserved communities — some offer mortgage products specifically for borrowers with credit challenges. In the UK, credit unions are regulated by the FCA and PRA and similarly tend toward relationship-based lending.

Key Criteria Lenders Actually Use: Beyond the Score

A credit score is a starting point, not the whole story. Understanding what else lenders look at allows you to strengthen every dimension of your application.

Factor What Lenders Look For Why It Matters for Bad-Credit Borrowers
Loan-to-value (LTV) ratio The lower the LTV (bigger deposit), the lower the risk A 25–30% deposit can unlock lenders that reject 90–95% LTV applications with adverse credit
Income stability Employed, self-employed, or variable income all assessed differently Consistent provable income offsets credit risk; gaps or recent changes raise flags
Debt-to-income (DTI) ratio US conventional loans generally cap at 43–50% DTI; UK affordability is assessed similarly High existing debt reduces the loan you can afford; paying down balances before applying helps
Time since adverse event Recency is a key underwriting variable Events over three years old are generally viewed more leniently than those under twelve months
Whether defaults are satisfied Paid vs unpaid defaults Paying outstanding defaults before applying demonstrates intent; check your file to confirm update
Bank account conduct Lenders often review three to six months of statements Regular overdraft use, gambling transactions, or erratic cash flows raise underwriting concerns
Employment continuity Length of time with current employer Stable long-term employment is a strong compensating factor

Illustrative Worked Examples

These are illustrative scenarios only. They do not represent guaranteed outcomes. Individual results will vary depending on the lender, the specific adverse events, and current market conditions.

Example 1: CCJ, satisfied, two years old (UK)

Situation: Applicant has a single CCJ for £850, satisfied eighteen months ago. Clean credit otherwise. Earns £42,000, has a 20% deposit on a £230,000 property.

Loan required: £184,000 (LTV: 80%)

Likely path: Mainstream high-street lenders will likely decline at the automated stage. A specialist adverse-credit lender such as Pepper Money or Kensington may consider this application at a rate premium of, illustratively, 1.5–2.5 percentage points above a comparable clean-credit product. At this profile, manual underwriting is standard. A whole-of-market broker would be the appropriate route.

Monthly cost difference (illustrative): On a £184,000 repayment mortgage over 25 years, the difference between a 4.5% rate and a 6.5% rate is roughly £230 per month — a meaningful but not insurmountable additional cost that reduces as the borrower's credit file improves and they remortgage.

Example 2: FHA loan with 580 score (US)

Situation: Applicant has a credit score of 585 following a period of financial difficulty three years ago, with two settled collections on their file. Earns $58,000 per year. Wants to purchase a $240,000 home.

Loan required: $231,600 (3.5% down = $8,400)

Likely path: FHA insured loan via an FHA-approved lender. The lender will assess the settled collections under FHA guidelines (check current HUD guidance at hud.gov — lender treatment of collections varies). Upfront MIP is 1.75% of the base loan amount (illustrative — verify at hud.gov). Annual MIP varies by LTV and loan term. The applicant should expect a higher note rate than a borrower with a 720+ score. If they can get their score to 620 over the next six to twelve months, conventional financing may become available with lower ongoing insurance costs.

How to Prepare Your Application: Practical Steps

1. Pull your credit reports before a lender does

In the US, you are entitled to a free annual credit report from each of the three major bureaus — Equifax, Experian, and TransUnion — through AnnualCreditReport.com, the official CFPB-endorsed site. In the UK, you can access statutory reports from Experian, Equifax, and TransUnion for free.

Look for: errors, duplicate entries, accounts you do not recognise, and defaults that should have dropped off (six years in the UK, seven in the US under the Fair Credit Reporting Act). Dispute errors formally — errors are more common than most borrowers expect.

2. Satisfy outstanding debts before applying

An unsatisfied default or CCJ will be viewed far more harshly than a satisfied one. If you have outstanding adverse entries, paying them off before applying — and then allowing time for the credit file to update (typically 30–60 days) — materially improves your profile.

3. Do not apply indiscriminately

Every hard search shows on your credit file for twelve months (UK) or two years (US, though the scoring impact fades). Applying to five lenders in a week will raise underwriting red flags and can compound the damage to your score. Use a broker who can soft-search the market on your behalf before a formal application.

4. Build your deposit

Deposit size is one of the most powerful levers available to bad-credit borrowers. Moving from a 10% to a 20% deposit does not just improve the maths — it opens an entirely different tier of lenders and products. If your timeline allows, prioritising deposit saving alongside credit repair is rarely wasted effort.

5. Stabilise your bank account conduct

Lenders review three to six months of bank statements as standard. Persistent overdraft use, missed direct debits, and gambling transactions — even if legal — raise concerns about financial management. Running your accounts cleanly for six months before applying is a straightforward preparation step.

6. Consider a mortgage broker with specialist market access

Specialist adverse-credit lenders in both the UK and the US often operate exclusively through broker channels. A whole-of-market broker — one who is not tied to a panel of preferred lenders — can identify which lenders are most likely to approve your specific profile without leaving unnecessary hard searches on your file. In the UK, check that any broker is authorised and regulated by the Financial Conduct Authority (FCA). In the US, brokers must be licensed; verify licensing through the NMLS Consumer Access database (nmlsconsumeraccess.org).

Common Mistakes Bad-Credit Mortgage Applicants Make

  1. Applying to a mainstream lender first and assuming the answer is always no. Some mainstream lenders do consider minor adverse credit. The mistake is the reverse: applying to every mainstream lender when a specialist route was clearly more appropriate, generating multiple hard searches for no result.

    Fix: Talk to a broker before applying anywhere. They can tell you which lenders are realistic options for your profile.

  2. Not checking their credit file for errors before applying. Errors on credit files — including debts belonging to someone else, wrong default dates, or accounts that should have been removed — are not rare. An error that reduces your score by 30–40 points can push you below a lender's threshold unnecessarily.

    Fix: Pull all three credit reports (in the US or UK), review each line, and dispute anything incorrect in writing before you apply.

  3. Paying off all their savings to satisfy a small debt and arriving at the application with a minimal deposit. Satisfying a £200 or $200 default is sensible, but depleting a £15,000 or $15,000 deposit to pay off a marginal balance is not.

    Fix: Calculate the trade-off. In some cases, it is better to carry a small settled default and keep the deposit intact.

  4. Taking out new credit in the months before applying. Opening a new credit card, car finance agreement, or personal loan shortly before a mortgage application creates a hard search, adds to total credit exposure, and raises underwriting questions.

    Fix: Freeze any new credit applications for at least six months before you intend to apply for a mortgage.

  5. Underestimating affordability issues alongside credit issues. A lender may be willing to consider adverse credit but still decline because the debt-to-income ratio is too high. Having a poor credit history and high existing debt is a compounding problem.

    Fix: Reduce consumer debt — credit cards, car finance, personal loans — before applying. Even small reductions in monthly outgoings shift the DTI calculation.

  6. Accepting the first offer without comparing. Specialist lenders charge for the additional risk, but there is still a market. Rate differences between specialist lenders on the same profile can be meaningful over a two- or five-year fixed term.

    Fix: Have a broker compare at least three lenders before proceeding. Get a decision in principle (DiP) before committing to a full application.

The Government-Backed Schemes Worth Knowing (UK)

While the UK does not have a direct equivalent to FHA lending, there are government-backed schemes that can assist buyers with limited deposits, some of which are accessible to borrowers with minor adverse credit:

Mortgage Guarantee Scheme — introduced to encourage lenders to offer 95% LTV mortgages. Whether a lender participating in this scheme will accept adverse credit varies; the scheme addresses deposit size, not credit history directly. Check current scheme status at gov.uk, as availability and terms are subject to periodic government review.

Shared Ownership — buying a share of a property and paying rent on the remainder. Housing associations operating shared ownership schemes have their own eligibility and affordability criteria. Some specialist lenders offer shared ownership mortgages to borrowers with adverse credit.

Right to Buy — council tenants purchasing their council home at a discount. The discount acts similarly to a deposit and can open lending options. Not all specialist lenders offer Right to Buy mortgages, but some do.

In all cases, verify current availability and eligibility directly with the relevant government department (gov.uk in the UK) or a regulated mortgage adviser.

If You Are Buying for the First Time With Bad Credit

The challenges of bad credit and first-time buying compound each other: you may have a smaller deposit, less credit history length, and fewer assets to offset risk. Our guide to first-time home buyer mortgage requirements covers the baseline criteria in detail and is worth reading alongside this article, particularly if you are still building your deposit or establishing your credit file.

A few additional points for first-time buyers specifically:

  • Thin credit files are not the same as bad credit. If you have never had credit, lenders may simply lack data to assess you. In this case, building credit history — through a credit-builder card used and paid in full monthly, or a credit-builder loan — is a different strategy to repairing damaged credit.
  • Longer mortgage terms reduce the monthly payment but increase total interest paid. Some bad-credit borrowers stretch to a 35- or 40-year term to pass affordability checks. Be clear about the long-term cost.
  • Your rate is not permanent. Most bad-credit borrowers remortgage onto a better deal after two to five years once their credit file has improved and they have built equity. The initial rate is the entry point, not the sentence.

A Note on Costs You Should Not Be Paying

No legitimate lender or mortgage broker charges you a fee simply to access the mortgage market or to be "matched" to a lender before any regulated advice or service is provided. Broker fees, where they exist, are disclosed clearly and are for regulated advice and arrangement services.

If you encounter anyone promising guaranteed mortgage approval for an upfront fee — regardless of your credit history — treat it as a serious warning sign of a scam. This applies equally in the UK and the US. The FCA in the UK and the CFPB in the US both publish guidance on mortgage-related scams. If something feels wrong, it usually is.

Where to Verify the Information in This Guide

Mortgage rules, government scheme availability, and credit thresholds change regularly. Always verify the following at source before making any financial decision:

  • US FHA loan limits, down payment requirements, and MIP rates: hud.gov
  • VA loan eligibility and entitlement: va.gov
  • USDA loan eligibility areas and income limits: usda.gov
  • CFPB mortgage resources and complaint filing: consumerfinance.gov
  • UK Mortgage Guarantee Scheme and government-backed buying schemes: gov.uk
  • FCA register to verify UK lender or broker authorisation: register.fca.org.uk
  • NMLS Consumer Access for US mortgage broker licensing: nmlsconsumeraccess.org
  • Your UK credit reports: Experian (experian.co.uk), Equifax (equifax.co.uk), TransUnion (transunion.co.uk)
  • Your US credit reports: AnnualCreditReport.com

This article provides general information only. It is not financial advice. Every mortgage application is assessed individually, and no outcome can be predicted or guaranteed. For advice specific to your situation, speak to a regulated mortgage adviser in the UK (FCA authorised) or a licensed mortgage professional in the US.