How to Get a Home Loan with Bad Credit

Get a Home Loan with Bad Credit

If you have a poor credit rating, getting a home loan is not going to be easy. Depending on your credit situation, it may even be impossible. Predatory lenders have been offering loans to people with poor credit, but these home loans are often dangerous financial products because of penalties and fees they carry. Many homeowners have ended up in foreclosure because of subprime mortgages. If you suffer from a low credit rating but need a home loan, there are a few steps you can take to avoid these dangerous loans.

Step 1

Check your credit rating before shopping for a home loan. Your credit may not be as bad as you think. A score under 620 is considered a very bad credit score. A score above 620 but below 680 is not ideal, but it is not so low as to keep you from getting a home loan.

Step 2

Take the time to raise your credit score by paying off some credit cards and making your accounts current. If your credit score is under 620, this is the only option to help you get an affordable home loan.

Step 3

Create a budget to determine how much you can afford to pay for your monthly mortgage payment once you have improved your credit rating. If you have significant amounts of debt, there may not be any extra money to put toward a home loan.

Step 4

Collect the money for a large down payment. The more money you can put down on your home, the more favorable your home loan terms will be, in spite of your low credit score. A large down payment shows the lender that you have some financial responsibility and lowers your monthly payment amount.

Step 5

Prepare yourself to have a high interest rate on your loan. This is the penalty for having a low credit rating. You can counter this somewhat with a larger down payment on your home.

Step 6

Keep careful track of the closing costs, points, penalties and fees on any loans you are offered. This will protect you from the dangers of the subprime lending market.

Step 7

Consider having someone co-sign for the loan with you if you have extremely poor credit. Your spouse or parent, for example, may be willing to sign for the loan with you, and their good credit score may help partially offset your score.

Step 8

Avoid the temptation to get an adjustable rate mortgage (ARM). These have lower monthly payments at the beginning of the loan, but the payment amount increases when the national mortgage rate increases. This means your mortgage could end up being much more than you can afford in a few years.

Step 9

Choose a loan with a fixed interest rate that has fair fees and the lowest interest rate possible for your situation. Keep the information on the other loans available in case you are denied for your first choice.


Use the Internet to aid you as you search for a home loan with bad credit. However, watch out for advertisements targeting buyers that have low credit, as there is usually a catch to these offers. If you have someone co-sign for a loan with you, that individual will be responsible for the loan if you cannot pay it. Make sure you can pay the loan's monthly payment so that you do not endanger your relationship with that friend or family member. Certain problems on your credit score, such as a recent foreclosure, will make it impossible to get any type of home loan.


Avoid bad-credit home loans that promise you impossibly low interest rates or other terms. These often have very high closing costs or variable interest rates. Avoid subprime mortgages. These are dangerous products, even if they end up being the only type of loan you can get. They often come with prepayment penalties or balloon payments, both of which can put you in a precarious situation and at risk for foreclosure. Take time to fix your credit score before you begin shopping for a loan if a subprime mortgage is your only option.