Home Loans for People With Bad Credit - Gone for Now

Reader Question: “I know a lot has happened over the last couple of years, as far as banks and lenders go. So I was wondering if there are still home loans available for people with bad credit scores?”

You’re exactly right. The mortgage industry has changed a lot over the last year or two. For one thing, subprime lenders have pretty much become extinct, and probably will be for some time. A subprime loan is one that is given to a borrower with bad credit (and other qualification problems).

In the 1990s and early 2000s, these home loans were given out like candy. People with bad credit who were turned away from traditional lenders could use a subprime lender as a last result. Of course, we know where this got us. These types of home loans contributed to our economic meltdown more than any other single factor. Some of the companies who specialized in bad credit loans (such as Ameriquest) have either gone bankrupt or ceased all lending practices. There are also new government regulations on this kind of lending practice.

The end result of all this is that people with bad credit will have trouble finding a home loan today. Granted, the credit score is just one of several factors a lender will look at when considering you for a home loan. They’ll also review the total amount of debt you are carrying, your current income, and other factors. But the credit score is certainly high on the list of qualifying criteria.

So no, there aren’t many home loans for people with bad credit these days. If you fall into this category, the best thing you can do is improve your credit score. This will help you qualify for a mortgage loan down the road, and qualify for a better interest rate as well.

Resources for People With Bad Credit

If you are trying to improve your score in order to get a home loan in the near future, you’ll find the following resources helpful:

• Education center at MyFICO.com
• Bad credit advice at the Home Buying Institute
• Advice on improving your credit score (Cornett Communications)

I hope this answers your question. If you have additional questions about qualifying for a mortgage, buying a home, or improving a bad credit situation, feel free to send it to us.