Getting Approved For Mortgage Loans With Bad Credit


One of the biggest misconceptions about mortgages is that only people with good credit can qualify for a mortgage. The truth is that there are ways in which people with bad credit can also qualify for a mortgage and they can even get a good interest rate as well.

The key to getting the right mortgage for your situation depends on how patient you can be and how much time you have. Some people are either impatient, or they find the perfect deal on a home and they need a mortgage immediately to capitalize on that great deal. Before you get involved in a mortgage, you need to understand the process and know why it is always better to have good credit when getting a mortgage if you want to save money.

Mortgage Loans

Good Versus Bad Credit

First and foremost, we need to understand why good credit is always preferred when getting a mortgage. There are some advantages to having good credit that cause people to try and repair their credit before getting a mortgage.

The first advantage to having good credit is that you can negotiate a lower interest rate. While people with bad credit can most certainly qualify for a mortgage, a bad credit rating means that you will have to settle for a high interest rate. One or two points on an interest rate can mean thousands of dollars you will be paying over the life of the loan.

Another advantage to good credit is that you will not need a co-signer for your mortgage. People with bad credit are often required to find a co-signer with good credit to give the lender another borrower to pursue if you should default on your loan.

People with good credit can often get by without putting down a sizable down payment. While it is always advisable that a home buyer put down as much of a down payment as possible on a mortgage, people with good credit can often be approved for mortgages with relatively low down payments.

The overall effect of having good credit means that you wind up paying less upfront for your home and you wind up getting a lower interest rate which saves you on the total cost of your mortgage. However, that does not mean that people with bad credit have no options. There is plenty that people with bad credit can do to get the mortgage they are looking for.

Clean Up Your Credit Report

If you have at least 30 to 60 days that you can wait before you buy your home, then you have time to do a small repair job to your credit. The federal government mandates that all three of the major credit reporting agencies are to give one free credit report to each consumer every 12 months. The three credit reporting agencies are: Trans Union, Equifax, and Experian. You should order your credit reports and use the dispute process to clear out any incorrect information.

You may see credit accounts that you do not recognize or that you paid off months ago. Report those accounts and have them updated. You should also start to pay all of your credit card bills on time as well. Anything you can do to improve your credit score by just a few points can mean a better deal on your mortgage.

Down Payment

People with good credit traditionally put up 10 percent of the cost of the home as a down payment. This is along with the traditional closing costs for a loan. A larger down payment has two immediate effects; it lowers your monthly payment and it allows you more negotiating room with the lender.

If you have bad credit, then consider putting down at least 20 percent of the purchase price as a down payment. This will allow the mortgage company to give you a loan without having to add mortgage insurance to it. This will be another way that a large down payment will lower your monthly payments.

If you have bad credit, then a 20 percent down payment is the way to get the lender to negotiate a lower interest rate with you and to prevent you from having to get a co-signer for your mortgage.


When people say that they are buying points on a mortgage, that means that they are making interest payments upfront that will lower the overall interest rate of your mortgage. If you have bad credit, then buying points is the way to get a mortgage that you can afford.

In most cases, buying points upfront is much less expensive than paying that extra interest over the course of the loan. Most lenders encourage you to buy points and it is something that people with both good and bad credit should do.

Shorter Term

It can be difficult to convince an lender to offer you a 15-year mortgage as opposed to a 30-year mortgage, but it is definitely worth trying. If you can afford the larger down payment, then you may want to offer that down payment in exchange for a shorter term mortgage.

If you have good credit and can afford the larger payments associated with a shorter term mortgage, then it may be a good option because it pays off the loan faster and will cost you less in interest payments in the long run.

Special Programs

If you have bad credit but you are a first time home buyer, then you may be able to benefit from a lender's first time buyer program. The federal government also backs loans for first time home buyers that can help you to get approved for your first mortgage almost regardless of your credit score.

There are special programs for low-income mortgages and mortgages for military veterans as well. Before you go out to look for a mortgage, contact the federal government and see if there are any mortgage programs you may be able to benefit from.

Income Property

People with bad credit can always improve their credit by making good on their obligations. If you have bad credit and you want to get a mortgage, then consider getting a mortgage on a property that can also help you generate an income. For example, a home with an apartment over the garage can be a way for you to generate revenue that will help pay for your mortgage and improve your credit rating.


Remember that the mortgage you get now does not need to be the mortgage you have in ten years. If you work hard to pay on your mortgage and it improves your credit score, then you should take advantage of your new credit rating and refinance your mortgage to get a lower interest rate.

When you have bad credit, it can seem like the whole world is against you. But there are plenty of ways that people with bad credit can get mortgages that look just like the ones for people with good credit. All you need to do is prepare yourself and be ready to take full advantage of every opportunity you have.

Find out about Shopping around for a home loan.
Learn about Refinancing Your Home.
Learn about Finding A Home.
Learn about Preventing Foreclosures.
Learn about Selling A Home.
Find Out How To Get A Home Loan With Only 3.5% Down.
Find Out The Answer To: Can You Rent Apartments With Bad Credit?
Learn the Pros And Cons Of Land Contracts.
Discover the Pros And Cons Of Leasing A Home With The Option To Purchase.