Getting a Mortgage with Bad Credit
By mortgage writer: Dave Leonhart

I’m often asked how does one get a good loan after bankruptcy or if you have bad credit? Is it possible to get a low rate loan even if you’ve had some dings on your credit? How about if you’re in foreclosure, can you still get a mortgage loan?

Well, the short answer is a resounding YES! You can get a loan if you’re in one of the situations that I just mentioned. But you need to understand how various lenders look at these “special” cases to understand how it works

Let me explain.

First, many lenders simply do not lend to homeowners who are trouble or have bad credit. So if you have tried getting a loan and were turned down, this could be due to the lender’s guidelines which do not permit them to lend to bad credit folks.

Second, even lenders who do offer mortgages to people with bad credit may have a limited variety of programs available. So again, don’t be discouraged just because you heard no the first time around when trying to get a home loan.

Third, there are lenders who just specialize in the area alone and have a wide variety of rates and programs for people who are credit impaired.

So how does one go about finding these lenders? Well, one of the easiest ways is to checkout of the many portal sites available on the web, such as RatesIQ.com, or LenderTree.com. These types of sites have many lenders available who specialize in just this type of loan.

To understand how lenders view these special kinds of loans, let’s get familiar with some of the specifics.

Lenders use various criteria to determine if someone is eligible for a loan. The primary three are:

So, that’s it! Now that may sound like gobbletygook if you’ve never heard these terms before, so let me briefly explain…

Your Credit Rating

From a lenders point of view there are two major “groups” of borrowers:

(*See Your Credit Score for a more detailed explanation)

The above groups are of course averages and each lender can differ slightly, but this gets you started on the right track. So, if you have a 619 or less credit score, that immediately means that you are now entering the credit is “less than perfect” side of mortgage lending, which limits the lenders who will grant you money. Many well known and very large banks have a tendency to stop lending at a 620 or less credit score. If they do make loans here, they’ve usually created a special division to handle customers’ mortgages with bad credit.

But of course the good news is that there are many lenders who WILL be more than happy to lend you the money. (As I mentioned, you can find many lenders who work with you at web sites like RatesIQ.com or LendTree.com, and many others.)

Now, here’s a very important point! If you’re credit score is 499 or less, you will have a very hard time finding ANY lenders to help you. So, if you know this to be true, this is simply a fact of life in the mortgage-lane.

LTV (Loan-to-Value)

After the credit score, this is probably the single most important factor in getting a loan. You calculate LTV by adding up all the ‘mortgages’ against your home (1st, 2nd, etc) and divide that number by the home’s value. Simple!

(Note: if you have an equity line of credit you must use the full credit line you have available for the loan amount even if you owe nothing against it, unless, you are planning on paying it off with a refinance, then use the actual loan amount)

So here’s an example how to calculate LTV:

Now, divide $120,000 by $200,000 and you get = .60 or 60%}

So, here are. Let’s look at just these two sets of lender criteria to see if we can get a loan. (note: This is just an example. Loan programs change all the time)