Sub-prime or bad credit mortgages are life savers for the right kind of borrower and unmitigated disasters for the wrong kind of borrower. Here is a list of characteristics of the borrower for whom a bad credit or sub-prime mortgage might be appropriate:

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1. You can afford the higher interest rate. Bad credit lenders have been known to approve borrowers at very high debt-to-income ratios. But that doesn't mean the borrowers can afford it. Your housing expense shouldn't be much higher than 31% of your gross (before tax) income, and the total of housing plus other monthly bills like car payments and credit card payments should not exceed 38% to 40% of your gross income. Use the Mortgage Credit Problems Affordability Calculator to test drive any mortgage before signing up.

2. You have found a fantastic deal on a property. Unless you have found a super investment or a dream property that you **must ** have, why wouldn't you just rent and improve your credit over time? It's probably cheaper.

3. You are refinancing from a bad credit mortgage to a better bad credit mortgage. As long as you can improve your financial position, it's okay to refinance to a bad credit mortgage. This can happen if you improve from being a D grade borrower to a B grade borrower, for example.

4. You have an exit strategy. Many folks got burned when they bought homes with zero down and took on adjustable bad credit mortgages. The idea was to improve their credit over a couple of years while the interest rate was relatively low, then refinance when their credit was good. But when home values dropped, folks with good credit found themselves stuck in bad credit loans. Then interest rates adjusted upwards, they couldn't afford the homes, and their credit ratings died horrible deaths. You need to know that you can afford the higher payment or come up with a way to get out of the loan if needed; don't count on property value increases to get you out of the loan. And be very sure that your credit will improve to the point that an FHA or conventional refi opportunity is likely.

If a bad credit mortgage makes sense for you, get the best one available by shopping with several lenders. The online form on this site makes it easy to connect with licensed lenders in your state.