7 Mortgage Tips for People with Bad Credit

Home buyers with problem credit need to be more cautious than most when looking for a loan. We've got seven fast and easy bad credit mortgage tips.

This page:

  • Explains how to save on bad credit mortgages

  • Helps you know where to shop for your mortgage

Over the next few pages, we examine all types of bad credit mortgages.

After reading this section, you should be familiar with all your bad credit mortgage options and, hopefully, have chosen one that meets your needs.

Chances are, you already have a pretty good notion how bad-credit loans differ from prime ones. Higher interest rates, more loan restrictions, and fewer product options.

But that doesn't mean you don't have choices, choices that make a big difference in how much you pay for your home. Here's a quick look at what you can do to save on a bad credit mortgage:

How to save on a bad credit mortgage

  • Be sure and have at least a year of "good credit" under your belt (bills paid on time, no charge-offs or collections). The one-year mark can make a big difference between so-so credit and really bad credit. The lower rate is worth the wait.

  • If you can document your income, do it. No doc loans command higher interest rate and if you've got poor credit you need all the help you can get in this department.

  • While a larger down payment always mean a better interest rate, some increases mean more than others. Lenders usually lower the interest rate with every 5% down, so if you've got enough cash for a 9% DP, it might be worthwhile to wait until you can make the full 10%.

  • Take a close look at the prepayment penalties on any mortgage. While you probably have to agree to some kind of penalty, try to find a mortgage with a maximum of 2 or 3 years. If you manage your mortgage responsibly, you'll want to be able to refinance in a few years without paying a stiff penalty.

Where you shop your mortgage matters

  • Shop a few different lenders for low rates. Unlike prime mortgages, bad credit mortgages are not a standard product. Prime borrowers are going to find similar loans wherever they look, but because of how differently every lender sees credit problems, bad credit mortgages tend to vary a lot. Make the variety work for you by shopping around.

  • Try a good prime lender. Your credit may not be as bad as you think, and as long as pre-approval is free, there's no reason not to shoot for the best deal out there.

  • That said, make sure you apply with every lender within a two-week period. Multiple requests for your credit score can hurt it, but not if they're all made within a two-week period. (Credit reporting agencies count all requests in this period as one so you can shop around for loans).

Get more bad credit mortgage help

Of course, the real key to saving on a mortgage is choosing the loan that best suits your needs.

If your housing plans are long-term and you'd like the financial stability of regular monthly payments, read more about building credit with an FRM.

For home buyers who will be moving soon again or who don't mind exchanging some payment stability for the lowest possible rate, try a credit repair ARM.

For more help with the fundamentals, try our guide to mortgage basics.


Next: Getting a mortgage after bankruptcy

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