Can I Get a Mortgage Loan If I Have Bad Credit?

You want to get a mortgage loan but you have bad credit. For

Available Cash

The process of applying for a bad credit mortgage is not unlike any other mortgage application. The lender will want to look over your credit report, your employment history, your income, and the amount of debt you are carrying. Lenders will also look closely at available cash. This is where things can change in your favor. If your credit rating is low, you will typically need to have much more available cash to compensate. A steady income notwithstanding, if you have cash reserves, you will be able to put down a higher down payment, sometimes as high as 20 percent or 25 percent. If, for example, you are considering a $200,000 house and put down 25 percent, or $50,000, you pose much less risk to the lender. Because you have so much invested in the property, it is much less likely that you will default on the loan.

Payment History

Assets and cash reserves do make a difference, but your payment history is also a consideration. After all, just because you have money doesn't necessarily mean you will pay on time. But you can build a nontraditional credit history by producing copies of canceled checks that show timely payment. You need to have good background information on paper to back up your regular bill payments. Just like building a traditional credit history, a nontraditional credit history takes time to establish. For more information, read What Is a FICO Score and How Does It Affect Your Mortgage Loan?

Credit Score

Your credit rating score can have serious implications on your mortgage, so correcting even a single mistake on your credit history could potentially save you thousands of dollars over the life of your mortgage loan. Don't take anyone's word for the state of your credit history; see it for yourself. Request reports from all the major credit companies and review them carefully for errors. If there are errors or inconsistencies, let the credit company know and request to have your record corrected.

Subprime Lenders

If you are looking for a subprime lender, get references and be very careful. Subprime lenders specialize in working with people who have bad credit. For every legitimate subprime lender, there are ones who are out to take advantage of people with poor credit scores. The good news is that most of these lenders are out of business. The bad news is that mostly every subprime lender -- legitimate and not-so-legitimate -- has closed up shop in these trying economic times.

Read Cleaning Up Your Credit Record to learn more about how to make yourself a better loan prospect.