How to Get a Mortgage with a 500-579 Credit Score in 2025

A 500-579 credit score puts you in the “very poor” credit range according to FICO standards, and most lenders will reject your mortgage application automatically. However, FHA loans allow 500-579 scores with a 10% down payment and manual underwriting—meaning human review of your full financial picture instead of automated rejection. Thousands of borrowers with scores in this range get approved every year by working with bad credit specialists who know which FHA lenders accept manual underwriting and how to present compensating factors.

This guide explains exactly how to qualify for a mortgage with a 500-579 credit score, what documentation you need, and which compensating factors overcome low credit in manual underwriting.

Why Most Lenders Reject 500-579 Scores (But Some Approve)

The majority of mortgage lenders—especially big banks like Chase, Bank of America, and Wells Fargo—will not approve credit scores below 620. Their automated underwriting systems (Desktop Underwriter for Fannie Mae, Loan Prospector for Freddie Mac) instantly reject applications under 620, and most banks impose even stricter overlays requiring 640-660 minimums.

However, FHA guidelines officially allow 500-579 credit scores with:

• 10% down payment (not 3.5% like 580+ scores)
• Manual underwriting by a human underwriter reviewing your full financial profile
• Compensating factors that offset credit risk (stable income, clean recent payment history, large reserves)

Only specialized FHA lenders who offer manual underwriting will approve 500-579 scores. These include certain credit unions, community banks, and independent mortgage companies focused on subprime lending.

FHA Manual Underwriting: What It Means for Bad Credit Borrowers

Manual underwriting removes the automated approval system and replaces it with a human underwriter who evaluates your entire financial situation. Instead of just seeing a 550 credit score and clicking “deny,” the underwriter considers:

1. Payment History Over the Past 12-24 Months

Recent payment patterns matter more than your overall score. If your 520 score comes from old charge-offs and collections from 3-5 years ago, but you have 24 months of perfect rent, utility, and auto loan payments, that demonstrates creditworthiness despite the low score.

Manual underwriters verify:

• Rent payment history (12-24 months of on-time payments through bank statements or landlord letters)
• Utility payments (electric, gas, water bills paid on time)
• Auto loans or other installment debts with clean payment records
• No recent late payments on any obligations

2. Debt-to-Income Ratio

FHA allows up to 43% back-end DTI (all debts divided by gross income) with manual underwriting, though lower is better. Some lenders cap DTI at 40% for 500-579 scores.

Example: You earn $4,500/month gross. Your proposed mortgage payment (principal, interest, taxes, insurance, HOA) is $1,400. You have a $300 car payment and $200 in student loans. Your DTI is:

($1,400 + $300 + $200) ÷ $4,500 = 42.2%

This is within FHA limits, but if you can pay off the car loan or student loans before applying, dropping DTI to 35-38% strengthens your application significantly.

3. Down Payment Size

FHA requires 10% down for 500-579 scores (instead of 3.5% for 580+). Larger down payments reduce lender risk and improve approval odds. If you can put 15-20% down, you may even qualify for portfolio loans outside FHA with more flexible terms.

4. Cash Reserves

Cash reserves (money left in savings after closing) demonstrate financial stability. FHA does not strictly require reserves for purchase loans, but having 3-6 months of mortgage payments saved strengthens manual underwriting files considerably.

Example: Your mortgage payment will be $1,500/month. Having $4,500-$9,000 in savings after closing shows the underwriter you can handle unexpected expenses without missing payments.

5. Compensating Factors

Compensating factors are positive aspects of your financial profile that offset low credit:

• Stable employment: 2+ years with the same employer (or in the same field if you changed jobs)
• Income growth: Recent raise or promotion showing upward trajectory
• Low housing payment increase: Your new mortgage payment is similar to or lower than your current rent
• Minimal debt: Only the mortgage and perhaps one small installment loan (no maxed-out credit cards)
• Explanation of credit issues: Medical emergency, divorce, job loss—events beyond your control that are now resolved

Step-by-Step: How to Qualify with a 500-579 Score

Step 1: Pull Your Credit Report and Know Your Exact Score

Use AnnualCreditReport.com to get free reports from all three bureaus (Experian, Equifax, TransUnion). Lenders use the middle score of the three, so if your scores are 505, 520, and 530, your qualifying score is 520.

Check for:

• Errors: Incorrect late payments, accounts that are not yours, collections you already paid
• Dispute opportunities: Inaccurate information can be disputed and removed, potentially raising your score 20-50 points

Step 2: Document 12-24 Months of Clean Payment History

Gather proof that you have paid rent, utilities, and other obligations on time for at least 12 months (preferably 24). Manual underwriters need this documentation:

• Rent: Bank statements showing monthly rent payments, or a verification of rent (VOR) letter from your landlord
• Utilities: 12 months of electric, gas, water bills showing on-time payments
• Other debts: Auto loan statements, student loan statements, etc., showing no late payments

If you have recent late payments (within the past 12 months), explain them with documentation (medical bills, temporary job loss, etc.) and show they are anomalies, not patterns.

Step 3: Save for 10% Down Payment + Closing Costs

For a $200,000 home:

• 10% down payment: $20,000
• Closing costs (2-5%): $4,000-$10,000
• Total needed: $24,000-$30,000

FHA allows down payment gifts from family members, so if you cannot save the full amount, family assistance can help. You will need to document the gift with a gift letter stating it does not need to be repaid.

Step 4: Find an FHA Lender Who Offers Manual Underwriting

Not all FHA lenders accept 500-579 scores. Big banks typically do not. Target:

• Credit unions: Navy Federal, PenFed, local credit unions often manual underwrite
• Independent mortgage companies: Veterans United, Freedom Mortgage, Carrington Mortgage
• Community banks: Smaller regional banks with portfolio lending divisions

Ask upfront: “Do you approve FHA loans with 500-579 credit scores through manual underwriting?” If they hesitate or say no, move on. Compare FHA lenders at BrowseLenders.com who specialize in bad credit approvals.

Step 5: Get Pre-Qualified (Not Just Pre-Approved)

Pre-qualification with a bad credit specialist involves a full financial review before formal application. They will:

• Analyze your credit report for approval obstacles
• Calculate your DTI and verify income documentation
• Review your compensating factors
• Recommend credit repair steps if needed (disputing errors, paying down cards)

Pre-qualification ensures you are truly ready to apply and avoid wasted hard inquiries on your credit.

Step 6: Apply and Provide Documentation

When you formally apply, be prepared to submit:

• Proof of income: Pay stubs (last 30 days), W-2s (last 2 years), tax returns (if self-employed)
• Proof of assets: Bank statements (last 2 months) showing down payment and reserves
• Rent and utility payment history: As described in Step 2
• Credit explanation letter: If applicable, explaining past credit issues and how they are resolved
• Down payment gift letter: If using gift funds

Manual underwriting takes longer than automated approval—expect 45-60 days from application to closing instead of the standard 30-45 days.

Common Reasons for Denial (And How to Avoid Them)

Reason 1: Recent Late Payments

If you have late payments within the past 12 months, most manual underwriters will deny you. Wait until you have 12-24 months of clean payment history before applying.

Reason 2: High Debt-to-Income Ratio

If your DTI exceeds 43% (or 40% depending on the lender), pay off debts before applying. Even paying off a $3,000 credit card with a $100/month minimum can drop your DTI by 2-3%.

Reason 3: Insufficient Down Payment

If you do not have 10% down saved, you cannot qualify for FHA with a 500-579 score. Consider:

• Delaying purchase to save more
• Requesting gift funds from family
• Waiting until your score reaches 580 (then only 3.5% down is required)

Reason 4: Lack of Compensating Factors

If you have a 510 score, recent late payments, high DTI, minimal reserves, and unstable employment, manual underwriting will likely deny you. Focus on improving at least 2-3 of these factors before applying.

Should You Wait to Improve Your Score to 580+?

Reaching 580 unlocks FHA loans with only 3.5% down instead of 10%. If you are at 560-575, waiting 3-6 months while:

• Disputing credit report errors
• Paying down credit card balances to under 30% utilization
• Making all payments on time

…can push you over 580 and save thousands in down payment requirements. Use MiddleCreditScore.com to track your score and see which lenders approve each range.

However, if you are stuck at 520 and need housing urgently (expiring lease, family situation), applying now with 10% down may be your best option. You can refinance to a better rate once your credit improves.

Non-QM Alternatives for 500-579 Scores

If FHA denies you or you prefer not to deal with FHA’s strict mortgage insurance requirements, non-QM (non-qualified mortgage) lenders offer alternatives:

• Portfolio loans: Held by the lender (not sold to Fannie Mae/Freddie Mac), these have flexible guidelines and approve 500-579 scores with 15-20% down
• Stated income loans: For self-employed borrowers who cannot document income traditionally
• Bank statement loans: Use 12-24 months of bank deposits to prove income instead of tax returns

Non-QM loans have higher interest rates (7-10% vs. 6-7% for FHA) but offer faster approval and fewer restrictions. Once you improve your credit, you can refinance to FHA or conventional for better rates.

Final Thoughts on 500-579 Credit Score Mortgages

Getting approved for a mortgage with a 500-579 credit score is challenging but absolutely possible through FHA manual underwriting or non-QM lenders. The key is working with bad credit specialists who know which lenders approve this range and how to present your compensating factors effectively.

Focus on demonstrating recent payment history improvements, saving for a 10% down payment, and keeping your DTI under 40%. If you can wait 3-6 months and push your score to 580, you will unlock 3.5% down FHA loans and potentially save thousands—but if you need housing now, do not let a 550 score stop you.

Connect with FHA specialists at BrowseLenders.com, verify your credit readiness at MiddleCreditScore.com, and once your credit improves, explore refinancing options at Cash-OutRefinance.com.