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

In a home finance market overflowing with potential lenders, almost anyone can get a mortgage if they are persistent enough and keep shopping around. Even people with bad credit or no credit can get a mortgage. The question is, however, at what cost?

There are lenders who specialize in working with people who have bad credit, often called "sub-prime lenders." However, for every legitimate sub-prime lender, there are others that are out to take advantage of people with poor credit scores. These disreputable mortgage brokers look to feed on people with bad credit and often offer loan consolidation, which can actually make matters worse, or they may offer a mortgage with outrageous terms buried in the fine print. If you are looking for a sub-prime lender, get references and be very careful.

That said, 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 favour. 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 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.

Assets and cash reserves can make a difference, but your payment history will still be a consideration. After all, just because you have money doesn't necessarily mean you will pay on time. But you can build a non traditional credit history by producing copies of cancelled 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 non traditional credit history takes time to establish.

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. 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.