My Credit is Really Bad--Can I Get Approved for a Home Loan?

By Gabriel Traverso
Mortgage Credit Problems Columnist

Not everyone has perfect credit. If you've gone through some rough times and your credit has suffered as a result, don't worry--chances are you can still get a home loan.

Step #1: Bad Credit Mortgages: Follow the Formula

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The first thing to understand when shopping for a bad credit home loan is that not all mortgage lenders are the same. So, you have bad credit. More people have bad credit than you might think. What you need to do is find a mortgage lender that specializes in working with borrowers who have bad credit. This means you'll need to shop around, talk with different lenders, and compare loan offers.

Step #2: Cleanse Your Credit as Much as Possible

Your credit report and FICO score are major items that mortgage lenders use to decide how risky it is to make you a bad credit home loan. You may end up paying a higher interest rate and the mortgage can cost you more because of the risk you present. That's life. However, you can take some small steps to improve your situation. Check your credit report for any errors and get them fixed. Pay all of your bills on time and, if your report shows any late payments, consider waiting another six months to show a steady payment history. This can make a difference.

Step #3: Down Payment

One of the biggest challenges for bad credit borrowers is getting a down payment together. It's true, you might be able to find a lender that will approve you for a bad credit mortgage with no down payment--especially if you have the income to show you can afford it--but it's risky! This means you'll have no equity in your home and that can be a recipe for disaster. Wait until you have at least 3% as a down payment. Check with friends and family to see if you can work something out. Having a down payment can provide greater security and more options to choose from when shopping for a bad credit mortgage.

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