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How to Apply for a Mortgage with Bad Credit

Mark Cappel
UpdatedOct 18, 2007
Key Takeaways:
  • Learn what kind of home loan is right for someone with bad credit.
  • Review steps you can take to improve your credit score.
  • Shop around for the best mortgage loan for you.

Can you still get a home with bad credit?

Can you still get a home with bad credit? How high would your interest rate be? Should you try to get approved for a mortgage loan before or after trying to clear up bad credit?

Banks want three things in a perfect borrower:

  1. Stable income
  2. Attractive credit history
  3. Low debt-to-income ratio.

If a potential borrower lacks in any one (or more) of these, the potential borrower will have a difficult time getting a loan.

Your credit rating is one important factor used by lenders when qualifying you for a home loan. You did not say why your credit is bad. Without understanding what caused your bad credit, I cannot tell you what specific steps to take, but I will make some general recommendations.

Review Your Credit Report

I recommend getting a credit report, to start the process of improving your credit score. This way, you can see where your score is today as well as review the report to see what needs to be addressed in order for your credit score to rise. You can get a free credit score instantly.

Improve Your Credit Score

Take the right steps to improve your credit score. This will increase your chances for qualifying for the lowest interest rates on any loan that you seek. Review your credit report and correct any inaccuracies. Pay off old collection accounts. Try to reduce the balances you carry on an active account to 20% or less than maximum credit line that you have been granted. has a wealth of information about credit at our Credit Resource Center.

Given your bad credit status, which is most likely reflected by late payments or maxed out account trade lines on your credit report, it will be challenging or impossible to qualify for a standard mortgage. That does not mean that there are not steps you should take to position yourself for a successful loan application down the road, if you cannot qualify now. For instance, you may want to contact your creditors and ask them to "re-age" your accounts and/or you can try to improve your credit by paying down or off credit card accounts and getting inaccurate marks removed.

FHA loans are ideal for people with bad credit

Because they do not require a borrower to have excellent credit in order to obtain a low interest rate loan, the FHA Government Loan Program is ideal for borrowers with impaired credit. FHA home purchase loans can be made with a very small down payment, which opens up opportunities to borrowers that lack a sizable down payment.

To qualify for an FHA loan, a borrower needs to prove that income is sufficient to make the monthly mortgage payment. The value of the house compared to the size of the loan also is quite important, when qualifying for the FHA Government Loan Program. Lastly, the dollar amount of any FHA loan is limited by the county where the home is located.

It used to be that lenders would allow strength in one area of a loan application to compensate for a weakness in another area. For instance, if a borrower had strong income, but weak credit, the lender may have approved the loan. These days, it is hard to qualify for a standard loan without strength in income, good credit, and either a sizable down payment (on a purchase loan) or some equity in a home (on a mortgage refinance loan).


In general, it cannot hurt to apply and see what lenders think of your own situation. Keep the FHA Government Loan Program at the top of your list, if you have bad credit. Also, when speaking to lenders, have your credit score in hand before speaking with them, so you can inform them of your score. This will help you reduce the number of credit inquiries made by lenders. Multiple credit inquiries made within a short period will lower your score. makes it easy to compare mortgage offers and different loan types. Please visit the loan form page and find a loan that meets your needs.

To make the right decision for your particular situation, be sure to shop around and find a loan that meets your needs. If you would like more information, please visit our mortgage resource page. Spend a few minutes to learn if a no-cost mortgage is right for your situation.

I hope this information helps you Find. Learn & Save.




MMortgages, Sep, 2010
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