By Gina Pogol
Mortgage Credit Problems Columnist

Ed Asks: Dear Gina, The Internet is full of stories about how there is no subprime lending taking place any more. Is this true? How can I find a bad credit lender so I can buy a house?

Gina Says:

Dear Ed,

Yes, it's true; bad credit mortgage lenders are leaving the business faster than scalded cats. There is financing available but you have to look harder. Several lenders that exited the market in the last couple of years have re-entered it, although with fewer products and stricter guidelines.

The Days of 100% Bad Credit Mortgages Are Gone

What took the sub-prime companies down was not so much the credit scores of their borrowers but the excess layering of risk--no down payments, no income verification, and bad credit. Charging a high interest rate doesn't help if the borrower just dumps the property when things get ugly. So if your credit isn't great, you need a good-sized down payment and stable, provable income.

Do the Math: Does a Bad Credit Mortgage Make Sense?

When determining if it makes sense to take a bad credit mortgage instead of waiting for your credit to improve, you need to ask the following:

• How much does buying or refinancing today save me over doing it one or two years from now? Today's interest rates, even sub-prime rates, are so much better than they were a couple of years ago that it may make sense to refinance a sub-prime mortgage. Or you might have found an incomparable deal on a home. Or you absolutely need to cash out some home equity now.
• Will I be able to refinance out of a bad credit mortgage in less than three years? Bad credit home loans are called "band-aid" loans for a reason. They come with high interest rates and are there to help you buy a home and improve your credit rating. But if you don't think you have the financial smarts or discipline to establish good credit, think twice about biting off a sub-prime mortgage. You could be stuck with it a lot longer than you'd like.

Where Do You Go for Bad Credit Home Loans Today?

Probably the best course of action is to simply fill out the form on this site and let lenders come to you--that's much easier than hunting a company down and finding out that it went out of business six months ago and just left a website hanging out there. You won't be asked for identifying information like your Social Security number, but be prepared to discuss your situation with a loan agent. Know your approximate credit score, how long it's been since you filed for a bankruptcy or went though a foreclosure, how much home equity you have if refinancing, or what your down payment is if purchasing a home. Speak to several lenders, including FHA mortgage providers, and see which one comes up with a workable deal for you.

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