A credit score of 650 is considered to be a “fair” on a scale of “poor” to “excellent” by FICO, so there’s still room for improvement. While it does meet the minimum requirements of most lenders for mortgage loans, you’ll still be able to qualify for FHA loans, VA loans, and several other programs available to help you become a homeowner.

Most borrowers understand that you need a good credit score to qualify for a home loan because it shows lenders that you are more likely to pay your loan on time. This is why lenders have a minimum credit score requirement.

Every lender is different, and whether you qualify for a home loan with a 650 credit score will depend on a number of other factors. Read on to learn more about home loans, credit score requirements, and qualifying for assistance programs.

What Credit Score Do You Need for a Home Loan

When you apply for a home loan, the lender will look at your credit score and credit history to determine if you are eligible for the loan. But that’s not the only thing they’ll look at to determine if you can take on mortgage debt. They’ll also look at your income, job stability, your liquid savings, and other factors, such as your debt-to-income ratio.

A person with a credit score of 650 is considered to have “fair” credit when rated on a scale of “poor” to “excellent,” so it is likely that you’ll be able to qualify for most home loans. But the terms and interest rates you’ll be offered may not be the best. A score range of 670 to 739 is considered to be “good,” while scores above 800 are considered to be exceptional.  

You’ll still be able to qualify for conventional, subprime, USDA, VA, and FHA mortgages with a credit score of 650. But if you can get your score to over 680 through credit repair, you may be able to qualify for better rates and more favorable terms.

3 Tips To Increase Your Chances of Approval

To improve your chances of getting a home loan with a credit score of 650, you’ll have to consider your entire profile, including your debt-to-income ratio, your employment, your liquid assets, and your income, to prove your creditworthiness. Some ways you can improve your profile as a borrower are by reducing your debt, improving your DTI ratio, and increasing your income.

1. Pay Off Debts and Bills on Time

As you prepare for your home application, you may be able to improve your credit score and credit profile within six months to a year. Taking the steps listed below may help you qualify for lower interest rates so you can save thousands over the life of your home loan.

  • Pay off your debts to improve your DTI ratio. If you have significant credit card debt, take steps to clear your outstanding balances.
  • If you can’t pay off your entire credit card balance, try to lower your usage to improve your credit utilization rate. Don’t use any more than 35% of your credit limit.
  • Avoid taking on any new credit before you apply for a mortgage.
  • Pay all your bills before the due date to avoid late payments.
  • Check your credit reports to spot inaccuracies. If you find any errors, report them to the respective credit reporting bureau responsible for producing and maintaining the report where you found the error.  By law, credit bureaus must get them corrected within 30 days once legitimate errors are reported.
  • Search for the best credit repair companies online and see how they can help you improve your credit score above 650.

2. Improve Your DTI Ratio

With a lower DTI ratio, you’ll be able to more easily qualify for a mortgage loan and get access to competitive rates. Here are a few ways to achieve that:

  • Use the debt snowball method to repay your debts. Focus on paying off your smallest debts first before you move on to the next. 
  • Alternatively, use the debt avalanche method, where you start by paying off your most expensive (highest-rate) debts first before moving on to the next debt.
  • Consider other debt-relief options like consolidation, balance transfer, debt management programs, or debt settlement to pay off your debts.
  • Reduce your expenses by eliminating little-used memberships and subscriptions and avoiding discretionary shopping, dining out, and other impulse spending. Use the extra cash to pay down debt. 
  • Avoid getting a new loan or credit card because it will make the situation worse.

3. Increase Your Income

Find ways to increase your income, such as by asking for overtime hours at your job, which is usually paid at an extra 50% over and above your normal rate of pay. You could also negotiate for a raise at your current job or change to a higher-paying job.

If your job doesn’t allow you to earn overtime pay, you could get an additional part-time job or start a side hustle of your own to add to your income. Use the extra income to get out of debt faster.

How To Get a Competitive and Low-Interest Home Loan

Each lender has different credit score requirements when evaluating mortgage applicants to see if they’ll be able to make mortgage payments. They also consider many other factors. If your credit score is near the lender's minimum requirements, they may ask for a larger down payment or charge a higher interest rate as part of their approval decision. That said, there are several competitive and affordable home loans with a 650 credit score available.

Comparing Lenders

These are the top three mortgage lenders in the U.S. currently offering mortgages to borrowers with credit scores of 650.

1. New American Funding

  • Minimum Credit Score- 580
  • Minimum Down Payment- 3.5%

New American Funding has branches in 37 states in the U.S. The mortgage lender offers a wide range of home loans, such as reverse mortgages and FHA loans. With low down payment options and transparent rates, it’s a good choice for first-time home buyers.

2. Caliber

  • Minimum Credit Score- 580
  • Minimum Down Payment- 3.5%

Caliber is a Texas-based home loan company that offers loans in all 50 states. Borrowers can apply for loans online or in one of its branches. The company offers a wide range of mortgage options, including conventional loans, VA loans, FHA loans, and jumbo loans. 

3. Northpointe

  • Minimum Credit Score- 620
  • Minimum Down Payment- 3.5%

NorthPointe Bank offers a variety of mortgages, such as conventional loans, FHA loans, VA loans, and government-backed loans. 

Borrowers also have access to refinancing options, home equity loans, and HELOCs. However, you’ll need to speak to a loan officer to get a mortgage quote since the application process is not entirely online.

5 Tips To Find Trusted and Reliable Home Loan Providers

It's easy to be overwhelmed with so many mortgage options available. Use these five tips to find and select the right one for your financial situation.

  1. Determine your preferred lending terms. Do you want an adjustable-rate or fixed-rate mortgage? How long of a loan term (10, 20, or 30 years) are you looking for? This will allow you to filter lenders. 
  2. Ask family and friends for referrals of lenders they’ve used and were happy with.
  3. Explore multiple lenders and reach out to their customer service number(s) about any questions you have before you start working with them. 
  4. Compare fees and rates charged by several lenders. Use a mortgage broker if needed.   
  5. Get a mortgage loan pre-approval for an estimate of what your interest rate and costs will be once you close.

Types of Home Loans to Get With a 650 Credit Score 

There are several different types of home loans you can apply for with a 650 credit score, depending on your financial situation, income, down payment, and other factors.

Quick and Easy Home Loans with a 650 Credit Score

If you’re looking for ease of application, automation, and convenience, online mortgage companies are your best bet. Some of them might even offer competitive rates, so you may be able to save more money compared to conventional loans. Some online lenders also specialize in a niche, such as first-time homebuyers, so there’s always something available for everyone. Get a free credit report from the three major credit bureaus–Transunion, Experian, and Equifax–before you apply for pre-approval.

Getting pre-approved with an online lender can be easy and fast if you’re organized. You’ll need to fill out the application and provide supporting documents, such as:

  • Tax returns
  • W2s, 1099s, and other employment-related income statements for the last two years
  • Employment history for the last 3+ years
  • Monthly income from all sources
  • Monthly expenses
  • Total secured and unsecured debts
  • Declaration if you’ve had any defaults or foreclosures

The lender will then provide you with an estimate of how much you qualify for. Preapprovals are typically valid for up to 60 days, so it is best to apply for them when you are about to start viewing homes.

FHA Loans

FHA loans are considered to be less risky by lenders because they are insured, so it’s easier to qualify for them. You’ll need a credit score of at least 580 if you want to qualify for a loan from the Federal Housing Administration with a down payment of 3.5%. If you are willing to make a down payment of 10% or more, there’s no minimum credit score requirement, but lenders may have their own requirements that you’ll have to meet in order to qualify.

One thing to keep in mind is that with FHA loans, you’ll need to pay mortgage insurance for the entire duration of the loan. You’ll need to pay the insurance fee at closing and pay the monthly insurance payments, which might make the mortgage a little expensive in some cases.

“Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. This insurance primarily protects lenders from losses from a potential decrease in the value of the real estate that secures the mortgage loan.  FHA mortgage loans don’t require Private Mortgage Insurance (PMI), but since they require such a low down payment, the FHA requires both upfront and annual mortgage insurance for all borrowers, regardless of the amount of down payment you make at the beginning of the loan.

Each loan contract is different, but if you have an FHA loan term of more than 15 years, you have been paying it for at least 5 years, and have an LTV ratio of 78% or less, this mortgage insurance can be removed from the loan.”  –Brad Reichert

Home Loans for First-Time Homebuyers

If you’re purchasing a home for the first time, there are several programs that can help you make your dream of home ownership a reality. These programs can help you get a better mortgage rate or qualify for a lower down payment. Interest rates have increased substantially in the last few years, and housing prices continue to be high, so these programs can be the lifeline that first-time buyers may need to secure the key to their first home. 

The federal government has several programs for first-time homebuyers. Many of these can have special eligibility requirements such as the type and location of property or borrower criteria such as military service.

Here are a few government-backed mortgage loans and government-funded assistance programs that can help first-time home buyers:

  • FHA Loan- Borrowers can qualify with a credit score of 580 and a 3.5% down payment.
  • HomePath Program- Fannie Mae’s HomePath program allows eligible first-time buyers to purchase a foreclosed home and receive assistance of up to 3% for closing costs.
  • Forgivable Down-Payment Loans- Many participating lenders offer forgivable 0% loans that act as a second mortgage. This means that after a specified number of years, you won’t have to pay back the loan.
  • Down Payment Savings Match- State-level housing finance agencies also offer Individual Development Accounts through which they contribute $3 for every $1 you save.
  • Down Payment Grants- Down Payment grants are usually given to borrowers with low incomes. The program comes with several requirements, such as maximum property price and minimum credit score.

VA Home Loans

VA home loans are insured by the Department of Veterans Affairs and can be a very smart choice for veterans. If you meet the eligibility requirements, you’ll be able to get a home loan even with a lower credit score and without a down payment. VA loans finance 100% of the purchase price without having to pay the mortgage insurance. You’ll have to pay a funding fee, which is a one-time cost.

Home Loans for Minorities

Homeownership rates can vary widely based on race and ethnic group. In 2020, White Americans’ homeownership rates were 72.1%, while for Hispanic Americans, the rate was 51.1%. When compared to white consumers, people of color face several challenges in getting approved for a home loan. Fortunately, there are several special programs specifically geared toward addressing these challenges.

The Hispanic Wealth Project by the National Association of Hispanic Real Estate Professionals has taken initiatives to support sustainable home ownership. Some mortgage lenders have also expanded their mortgage programs to make homeownership easier for minority communities. Lenders like Chase, TD Bank, and Bank of America are working to help minority homebuyers through lender credits, loans without down payment requirements, and even down payment grants.

Home Loans for Recent College Graduates

If you have just graduated, you may only have a part-time job while in college. Qualifying for a home loan or any other type of loan may be challenging. Instead of proof of past employment, you may be able to offer college transcripts for two years. But you’ll still have to show that you are currently employed full-time. Additionally, you’ll also need to show that your income can be relied upon for at least three years after you purchase your home.

An FHA loan is probably the best home loan option for recent college graduates with a 650 credit score because it only requires a 3.5% down payment. If you have student loans, check if you are eligible for debt forgiveness or payment deferment to reduce your debt load.

Getting out of debt can increase your chances of qualifying for a loan because it improves your debt-to-income ratio.

You can also continue to pay your loans in a timely manner to build your credit profile up, or if you're struggling with credit cards, be sure to research ways to build credit without a credit card.

Another option is to check with lenders that offer special loan products for graduates. Some lenders may offer a reduction in origination fees or closing cost assistance.  

Home Loans for Single Parents

Raising children and paying the bills is rough for single parents. The cost of buying a house on top of it may feel like an impossible task. Having two incomes makes it easier to buy a property, but there are several assistance programs available to help you. Many states offer subsidies or programs for those buying in rural areas, low-income buyers, and first-time homebuyers. While these are not specifically for single parents, they are still available and accessible if you qualify for them.

Single dads and moms that fall into the category of low-income or moderate-income buyers may be eligible for assistance programs listed below:

  • Good Neighbor Next Door is a program that helps firefighters, law enforcement officials, emergency medical technicians, and teachers. If you qualify, you can enjoy 50% off the list price if you purchase through the HUD.
  • Habitat for Humanity operates in all 50 states, and eligible participants may get help building their own homes from qualified volunteers.
  • The Housing Choice Voucher Program offers qualified public housing residents a chance to become homeowners through the local HUD program.
  • Every state also has closing costs and down payment assistance programs to help single parents purchase homes.

Home Loans for Self-Employed Individuals

If you’re self-employed and want to get a mortgage with a 650 credit score, you’ll need to fill out the same type of application as regular buyers. Lenders will take the same things into consideration, such as your credit score, income, liquid assets, and personal and business debt. The only thing to keep in mind is that you’ll need to provide the required documents to demonstrate that you have a stable income, which can be difficult when you don’t have a regular paycheck.

To qualify for a mortgage as a self-employed individual, you’ll need to demonstrate a history of two years of uninterrupted income. Here are some documents that a lender may request:

  • List of current clients
  • Membership in a professional organization
  • DBA- Doing Business As
  • Proof of Business Insurance coverage
  • Business License
  • Bank statements
  • Profit and loss statements, including Schedule C, K1, or Form 1120S
  • Personal tax returns
  • W2s if you are getting paid through a corporation

Home Loans for Rural Areas

Finding the right lender to work with will be important if you are purchasing a home in a rural area. Not all lenders may service rural areas. You can still get a USDA home loan that is designed to help low- and moderate-income buyers purchasing homes in rural areas.

A USDA home loan is guaranteed by the Rural Development Guaranteed Housing Loan Program, a part of the U.S. Department of Agriculture (the USDA). These are mortgages with zero down payments for those purchasing properties in eligible rural areas and towns. USDA loans have lower interest rates compared to traditional mortgages. 

In January of 2024, the interest rates for loans issued by the USDA were set at 5.125%. These loans also don’t require you to pay for private mortgage insurance (PMI).

Home Loans for Seniors

Many seniors and retirees are interested in downsizing, tapping into their equity, or purchasing a vacation home. However, those who are retired and living primarily on Social Security income benefits may find it difficult to meet the eligibility requirements for home loans. You’ll likely need to provide extra documents to demonstrate your income sources to qualify. Other than your Social Security income, lenders may also consider other income sources such as rental income, investment income, long-term disability, child support, and alimony.

Reverse mortgages are specifically designed for those who are retired. Reverse mortgages allow you to tap into the equity of your home by receiving regular monthly payments via a home equity loan, which grows each month as payments are made to the homeowner. The interest is deferred until the loan matures or if the owner sells or moves out of the home. Over time, as payments are disbursed to the homeowner, the balance owed on the property increases, and the equity s/he has in the home typically decreases. Only those who are 62 years of age or older can qualify for a reverse mortgage. Reverse mortgages might not be the right fit for everyone, but there are other alternatives available, such as cash-out refinance, home equity loans, and home equity lines of credit.

Home Loans for Low-Income Individuals

Those with low incomes may face many obstacles on their way to homeownership. Saving for a down payment is not easy. If you have bad credit, it may impact your ability to borrow. There are several loan programs that can help if you qualify for them.

One such program is offered by the Neighborhood Assistance Corporation of America, which offers mortgages at low rates to low-income borrowers. If you qualify, you won’t need to pay any closing costs or down payment.  

The Section 184 Indian Home Loan Guarantee Program offered by the U.S. Department of Housing and Urban Development (HUD) is a home loan specifically designed for Alaska Native and American Indian families. Borrowers qualifying for this program can purchase a home with flexible underwriting and a low down payment. The loans can be used on and off native lands. They can be used to refinance or purchase an existing home or for new construction.

Having a place of your own to call home is the ultimate dream. For many borrowers, it may be far from reach because of affordability issues, low credit scores, or other common obstacles. Fortunately, there is a wealth of resources and programs to look into to be one step closer to realizing your dream.

To improve your chances of qualifying for a home loan with a credit score of 650, reduce your debt load. If you have considerable debt, look into debt relief options, such as those offered by TurboDebt. Take benefit of our free consultation to see how we can help you find the right debt relief option for your individual needs.

Finding the Best and Top-Rated Home Loans

To find the best home loans with a 650 credit score, you’ll need to compare lenders as well as the loan products they offer. The process for choosing a mortgage lender is the same whether you are looking for a conventional lender or an online lender. Borrowers that explore their options may be able to get better rates.

Researching and Comparing Lenders

Here are a few things to keep in mind when comparing lenders:

  • Take into account the APR and interest rates offered by different lenders.
  • Compare closing costs as well as other fees and loan terms they offer.
  • Think about the loan features that are the most important to you and then compare lenders side-by-side based on those features.
  • Read lender reviews and call lenders to ask for their interest rates or fees.
  • Look for borrower qualifications, mortgage discounts, or any special features offered, like rate match guarantees.

Home Loan Interest Rates with a 650 Credit Score

The interest rate you’ll qualify for with a credit score of 650 will vary depending on a number of factors, such as the type of mortgage you’re applying for and the lender. Typically, you’ll qualify for a lower interest rate with a higher credit score. It is also important to understand the difference between the interest rate for a loan and its Annual Percentage Rate (APR).

Understanding Interest Rates and APR

The interest rate of a loan is the cost that you’ll pay to borrow funds each year. This rate is expressed as a percentage of the amount borrowed and does not reflect any other charges or fees. The APR of a loan is the total cost of the loan in that it reflects not only the interest rate but also all of the fees, points, broker fees, and other charges involved in getting the loan.  Using the APR instead of just the interest rate allows a borrower to more easily compare loans of similar loan structure and terms on an “apples to apples” basis.

The APR is almost always higher than the interest rate because nearly all mortgage loans involve some sort of additional charges and/or fees to obtain and/or service them. When comparing the APRs of adjustable-rate loans, remember that they will not reflect the loan’s maximum interest rate. You also won’t get an accurate overview of the total cost of the loan if you compare the APRs of adjustable-rate loans with fixed-rate loans.

Apply For a Home Loan With a 650 Credit Score

There are a number of home loan options and programs available for borrowers with a 650 credit score. The right loan option will depend on a number of factors, such as your income, down payment, and whether you fall into a special borrower category, such as a veteran. 

Review the options we’ve listed in this guide carefully and speak to a mortgage originator to understand which one is right for you.