Can You Buy a House with a 500 Credit Score? Yes—Here’s How

Buying a home with a 500 credit score might seem like a long shot—but it’s not impossible. While low credit does make things more challenging, there are still viable paths to homeownership, especially through government-backed programs like FHA loans. Just know that success will require extra planning, a strong financial foundation, and a realistic mindset.

This guide breaks down what it takes to buy a home with a 500 FICO score—from down payment expectations to lender requirements to strategies for getting your offer accepted.

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FHA Loans: The Most Flexible Option for Low Credit Scores

The Federal Housing Administration (FHA) is one of the few programs that allows buyers with credit scores as low as 500 to qualify for a mortgage—but there are conditions.

If your score falls between 500 and 579, you’ll need to put at least 10% down. Some lenders may even require 15% to offset risk. For context, buyers with a 580+ score can qualify with as little as 3.5% down.

Key FHA Requirements for Credit Scores 500–579:

• Minimum 10% down payment (some lenders may require more)

• Full documentation of income, employment, and assets

• No recent major credit events (e.g., bankruptcy or foreclosure within the last 2–3 years)

• Debt-to-income (DTI) ratio generally below 43% (some lenders may allow up to 50% with strong compensating factors)

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What Are Compensating Factors—and Why Do They Matter?

When applying with a 500 credit score, you’ll need to demonstrate additional financial strengths to help balance out the risk. These are known as compensating factors.

Here are some examples:

• Larger down payment (10–15% or more)

• Low DTI ratio, ideally under 40%

• Consistent on-time rent payments

• Stable employment history (2+ years in the same field)

• Significant savings or reserves (3–6 months of mortgage payments)

• No recent late payments

The more of these you can document, the better your chances of getting approved.

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Down Payment & Closing Costs: What You’ll Need

Let’s look at an example. If you’re buying a $300,000 home with a 500 credit score:

• Down payment (10–15%) = $30,000–$45,000

• Closing costs (2–5%) = $6,000–$15,000

• Total cash to close = $36,000–$60,000

If that feels steep, don’t worry—you may be able to offset some of these costs with seller credits.

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Can You Still Get Seller Credits with a 500 Score?

Yes, seller credits are still an option—even with low credit. Many sellers are open to offering 3–6% in closing cost credits if the rest of your offer is strong.

Tips to improve your chances:

• Offer full price (or slightly above) so the seller nets their asking price

• Show proof of funds for the down payment

• Include a complete pre-approval letter with all documentation

Seller flexibility often increases with homes that have been on the market for more than 30 days or are vacant.

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What Are Your Odds of Getting Into Contract?

This depends on your local market, but here’s what to consider:

• In buyer’s markets (more inventory, fewer buyers), you may have a solid shot—especially with a strong down payment and a proactive lender.

• In competitive markets, you’ll need to come in strong. The right agent and a lender experienced with manual underwriting can make all the difference.

Targeting overlooked listings or motivated sellers can also improve your chances.

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Final Thoughts: Should You Wait or Move Forward?

Buying a home with a 500 credit score is possible—but it’s not for everyone. Here’s a quick reality check:

✅ You’ll need more cash upfront
✅ You must be financially organized and responsive
✅ You need a lender who understands FHA guidelines and manual underwriting
✅ You’ll benefit from a sharp real estate agent who can position your offer well

If you have some savings, stable income, and the drive to follow through—you can do this.

But if funds are tight or your credit report still shows recent issues, it may be smarter to focus on rebuilding your credit for 6–12 months. That could lower your required down payment, improve your interest rate, and give you more loan options.

Either way, you don’t have to figure this out alone. Work with a knowledgeable loan officer who can help map out the right plan for your goals.

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