By Francine L. Huff
Mortgage Credit Problems Columnist

If you have bad credit it may not be easy to qualify for a debt consolidation loan or mortgage. On the other hand, despite the current woes in the housing market it's not impossible either. So where do you turn if you want to buy a home? Here are some tips for obtaining a mortgage for people with bad credit.

What's Your Score?

Although not all lenders use the same cutoff score, if your credit score is 620 or below, you're likely to be charged a higher interest rate. However, some lenders have approved mortgages for people with bad credit scores in the low 500s. Other factors like lots of available home equity can offset credit problems to some extent. Check your credit score before applying for a debt consolidation loan or mortgage. If you have bad credit and a score below 620 it may be better to apply for a mortgage directly through a lender as opposed to using a mortgage broker to get the best rate.

FHA Mortgage Loans

Despite your bad credit you may qualify for a mortgage through the Federal Housing Administration (FHA). The FHA makes is easier to buy a home than other loan programs, especially if you're a first-time homebuyer. FHA mortgages allow:

• Down payments as low as 3%
• The use of monetary gifts for down payments
• No minimum requirements for credit scores
• The purchase of a home two years after a bankruptcy
• The purchase of a home three years after a foreclosure.

Debt Consolidation Loan

If you already have a mortgage you may be able to begin repairing your bad credit with a debt consolidation loan. With this type of loan you can use a mortgage to consolidate credit card and other types of debt. Having bad credit will probably result in a higher interest rate and fees on a debt consolidation loan. However, in the long run you may be better off since you can pay off credit cards that have even higher interest rates and minimum balances you may not be able to afford. The goal is to repair bad credit with a debt consolidation loan that lowers your overall monthly payments and helps you stick to a budget.

Keep in mind that some mortgages just won't be available for people with bad credit. If you're in that boat, you can always try to find a seller who's willing to finance your home purchase. Under this scenario the buyer makes a down payment to the seller, who acts as the bank. If you choose to use seller financing, make sure you have the contract reviewed by an attorney and recorded with your county clerk. This will protect against the seller turning around and selling the property to someone else or taking equity out of the home.

Sources
Federal Housing Administration
Consumer Bad Credit Guide

About the Author

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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