Bad Credit? A New Home Loan Could Help

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Having bad credit or poor credit won't prevent you from getting a home loan. If you work hard at keeping your credit clean, making your mortgage payments on time can go a long way to bringing your credit score up.

Lenders are offering more bad credit mortgages today than ever before. In 1999 about 5% of the loans offered fell into the subprime category, whereas in 2006 about a fifth of the total loans offered fell into that category, according to the Federal Reserve. Generally, anything below "fair" credit, or a score of about 600 is considered a bad credit mortgage.

Bad Credit Mortgage: What Can I Expect?

With the shift in the economy and many analysts expecting a recession, some lenders are tightening their guidelines and moving away from bad credit home loans. However, there are still plenty of lenders to work with and now is a good time to start shopping around.

Where does your bad or poor credit leave you in a loan? Well, you can expect to pay interest rates anywhere from one percent to three percent higher than someone with good or excellent credit -- a FICO score of 700 or higher. It will depend on the mortgage type, your equity or down payment, your income, the amount of savings you have, and the programs your loan officer can find you. If you have a score of at least 600 you should be able to get approved for 100 percent of the property value, but check with your loan officer.

Take Action

With house prices stabilizing and the economy on careful footing, don't wait too long to start shopping for your home loan. Now is still an excellent time to get into a mortgage, even with bad credit, but if you wait around interest rates could continue to go up. Find out what options are available to you and start improving your credit while you enjoy your new home.

The Washington Post: Shifting Housing Market Snubs Bad Credit

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