500 credit score home loans: what to expect and how to prepare

The reality

If your FICO sits near 500, qualifying for a mortgage is tough-but not impossible. Some FHA-backed and non‑QM programs consider borrowers below 580 when strong compensating factors are present, such as steady income, cash reserves, and a reasonable debt‑to‑income ratio. Expect stricter documentation and a larger down payment requirement.

What lenders look for

Underwriters focus on recent payment history, housing stability, and the story behind any late marks. A clear, well-documented file can offset risk even when the score is low. Be ready to explain credit events and show progress.

• Pull all three credit reports and dispute obvious errors.
• Save for a larger down payment (often 10% or more).
• Pay down revolving balances to lower utilization.
• Gather W‑2s, pay stubs, and bank statements up front.
• Rate‑shop multiple lenders within a short window.

Costs and timing

With a 500 score, anticipate higher rates, points, and mortgage insurance, plus tighter property standards. Processing may take longer due to manual reviews.

Bottom line

Improve what you can, document everything, and compare offers; with patience and preparation, a sustainable loan can be within reach.