Quick answer: You can buy a home with bad credit and little or no money down through government-backed loan programs. FHA loans allow a 3.5% down payment with a credit score of 580 or higher (500-579 with 10% down). VA loans (for eligible veterans and service members) and USDA loans (for eligible rural and many suburban areas) require zero down payment. Down-payment assistance programs — including Texas programs like TSAHC and TDHCA's My First Texas Home — can cover most or all of the cash an FHA loan requires, getting many buyers to the closing table with very little out of pocket.
We've helped Houston buyers get mortgage-ready for years, and the pattern is consistent: the buyers who think they're locked out usually aren't — they just haven't matched their situation to the right program. Here's how the options stack up in 2026.
Loan programs compared: minimum score and down payment
| Program | Minimum credit score | Minimum down payment | Best for |
|---|---|---|---|
| FHA | 580 (500 with 10% down) | 3.5% | Lower scores, past credit problems |
| VA | No official minimum (lenders often want ~580-620) | 0% | Veterans, active duty, some surviving spouses |
| USDA | No official minimum (640 streamlines approval) | 0% | Eligible rural and outer-suburban areas |
| Conventional 97 | 620 | 3% | First-time buyers with fair-to-good credit |
| HomeReady / Home Possible | 620 | 3% | Low-to-moderate income buyers |
Two caveats that apply across the board: lenders can set their own "overlays" (stricter requirements than the program minimum), and the score is only part of the file — lenders also weigh your debt-to-income ratio, employment history, and recent payment record.
FHA loans: the workhorse for bad-credit buyers
FHA loans are insured by the Federal Housing Administration, which is why lenders accept scores and down payments conventional lending won't. The essentials:
- 580+ score: 3.5% down. On a $250,000 house, that's $8,750.
- 500-579 score: 10% down. Fewer lenders work in this range, but the program allows it.
- Down payment can be a gift from family, or covered by an approved down-payment assistance program — meaning "no money" out of your own pocket is genuinely possible.
- The trade-off: FHA charges an upfront mortgage insurance premium (1.75% of the loan, usually rolled in) plus an annual premium paid monthly, which on most 3.5%-down loans lasts for the life of the loan until you refinance.
FHA is also more forgiving about past events: many lenders will consider you roughly two years after a Chapter 7 bankruptcy discharge or three years after a foreclosure, with re-established credit.
Conventional 97: 3% down without FHA insurance
Fannie Mae's Conventional 97 program lets first-time buyers put down just 3% on a conventional loan. You'll generally need a 620 score, and pricing improves meaningfully as your score climbs. The advantage over FHA: private mortgage insurance (PMI) on a conventional loan cancels once you reach about 20% equity, instead of running for the life of the loan. If your score is in the mid-600s or better, compare a Conventional 97 quote against FHA before assuming FHA is your only option.
HomeReady and Home Possible: built for moderate incomes
HomeReady (Fannie Mae) and Home Possible (Freddie Mac) are 3%-down conventional programs aimed at low-to-moderate income buyers — generally those earning no more than 80% of their area's median income. They allow co-borrower flexibility, count some non-traditional income, and offer reduced PMI pricing compared to standard conventional loans. Minimum score is typically 620. For buyers who qualify on income, these often beat both FHA and Conventional 97 on total monthly cost.
Zero-down for real: VA and USDA
VA loans are the strongest mortgage product in America for those who've earned the benefit: no down payment, no monthly mortgage insurance, and competitive rates. The VA sets no official minimum score, though most lenders look for roughly 580-620. There is a one-time funding fee (waived for veterans with service-connected disabilities).
USDA loans offer zero down in USDA-designated rural areas — which include more outer-suburban territory around Houston than most people expect. There are household income limits, and while USDA sets no official score minimum, a 640+ score qualifies you for streamlined underwriting. USDA charges a modest upfront guarantee fee and a small annual fee, both cheaper than FHA's insurance.
Texas down-payment assistance programs
This is how "bad credit AND no money" becomes a real closing, not a slogan:
- TSAHC (Texas State Affordable Housing Corporation) — the Homes for Texas Heroes program (teachers, police, firefighters, EMS, corrections officers, veterans) and Home Sweet Texas program (income-qualified buyers) provide down-payment assistance as a grant or deferred forgivable second lien, typically up to around 5% of the loan amount. Minimum score is generally 620.
- TDHCA (Texas Department of Housing and Community Affairs) — My First Texas Home pairs a low-rate first mortgage with down-payment and closing-cost assistance as a deferred, 0%-interest second lien, generally repaid only when you sell or refinance. TDHCA also offers Mortgage Credit Certificates (MCCs), a federal tax credit on a portion of your yearly mortgage interest.
- City and county programs — Houston's Homebuyer Assistance Program and Harris County's Downpayment Assistance Program provide additional help for income-qualified buyers within their jurisdictions.
These programs stack on top of FHA or conventional first mortgages. The catch: most require a 620+ score, homebuyer education, and income under program limits — so cleaning up your credit first can be the key that unlocks the assistance money.
How much does a better score change your rate?
Mortgage pricing is tiered. A buyer in the "fair" range (roughly 580-669) typically pays a meaningfully higher rate than the same buyer in the "good" range (roughly 670-739), and the gap widens again at 740+. Directionally, moving from the low 600s to the low 700s can shave enough off your rate to save tens of thousands of dollars in interest over a 30-year loan and lower the payment enough to change what you qualify for. Exact pricing depends on the lender, loan type, and market conditions on the day you lock — but on a mortgage, credit improvement pays better than almost anywhere else in your financial life.
Your 6-month pre-application credit cleanup checklist
Lenders look hard at the last 12-24 months of your file, so the six months before you apply matter enormously:
- Months 6-5: Pull and audit all three reports. Get your Equifax, Experian, and TransUnion reports and go line by line. A three-bureau monitoring tool like SmartCredit lets you watch all three reports and scores while you work through the rest of this list.
- Months 5-4: Dispute errors and attack collections. Dispute inaccurate items in writing and demand validation on collections — our guide to removing collections from your credit report covers the exact process. Note that medical collections under $500 no longer appear on credit reports at all.
- Months 4-3: Pay down card balances. Utilization is the fastest lever you control. Getting each card under 30% of its limit — ideally under 10% — helps your score without any disputes.
- Month 3: Stop applying for credit. No new cards, no financing, no "90 days same as cash." Hard inquiries and new accounts work against a mortgage file.
- Months 2-1: Perfect payment behavior and paper trail. Every account on time, every month. Gather two years of tax returns, recent pay stubs, and bank statements. Don't move large sums between accounts without documentation — underwriters ask.
- Month 0: Get pre-approved, not just pre-qualified. A true pre-approval with a document review tells you your real budget and surfaces any remaining file problems while there's still time to fix them.
Advertiser disclosure: The Credit Agents may earn a commission if you sign up for a service through links on this page, at no extra cost to you.
One more note: if homeownership is a year or more away and you're currently renting, your credit file matters there too — here's what credit score you need to rent an apartment while you build toward buying.
Frequently asked questions
What credit score do I need to buy a house with no money down?
The two true zero-down programs are VA and USDA. Neither sets an official minimum score, but most lenders want roughly 580-620 for VA and use 640 as the streamlined-approval threshold for USDA. If you don't qualify for either, an FHA loan (580+ score, 3.5% down) combined with a down-payment assistance program can get you to closing with very little of your own cash.
Can I get an FHA loan with a 500 credit score?
The FHA program allows scores of 500-579 with a 10% down payment. In practice, fewer lenders offer loans in this range and underwriting is stricter, so many buyers in the low 500s find it faster to spend a few months cleaning up their reports and crossing the 580 line, where only 3.5% down is required.
What down-payment help is available in Texas?
The two biggest statewide sources are TSAHC (Homes for Texas Heroes and Home Sweet Texas, offering assistance typically up to about 5% of the loan) and TDHCA's My First Texas Home (down-payment and closing-cost assistance as a deferred 0%-interest second lien). Houston and Harris County run their own income-qualified assistance programs as well. Most require a 620+ credit score and a homebuyer education course.
Should I fix my credit before applying for a mortgage?
In most cases, yes. A higher score can qualify you for cheaper mortgage insurance, a lower rate tier, and down-payment assistance programs that require 620+. Since lenders weigh recent history most heavily, six months of disputing errors, paying down balances, and perfect on-time payments before you apply can change both your approval odds and your monthly payment.