As evidenced by the current economic situation, more people than ever have bad credit, but have still become involved in the world of purchasing property. When it comes to buying a home, this is bad news for the prospective buyer with bad credit. If you are considering purchasing a home, good credit can make this process much easier. A good to excellent credit rating will impress the lenders you that will eventually back the loan. Although sometimes it can be confusing to see where you should begin to repair your credit, the sooner you begin the closer you will be to improving your standing. Of course, there are still obstacles to overcome, so, what is the best way to secure a mortgage with a low credit score? First Steps A great first step is to become aware of your credit score. Even if you know that your score is low, find the exact number so you where you stand. In most cases, this is a free process. One free credit report is made available to every American each year. A paid version is also available from one or all of the three major credit reporting agencies; TransUnion, Experian or Equifax. This report will state that your credit score is between 350 to 850. The higher your credit rating is, the better you will look to lenders. While you may never have a perfect credit rating, you want to have it as high as possible. Pay Your Bills on Time Probably the simplest way to improve your credit rating is to begin to pay your bills on time each month. When a payment is not made on time, it affects your credit score in a negative fashion, which can cause lenders to think twice before lending to you. The thought process is this: if you can't pay your regular bills on time, then there is a good chance that you will not be able to pay your mortgage payments on time as well. If you have a difficult time paying bills on time, you perhaps should consider automatic bill pay options. This will deduct the money from your checking account each month so that you do not have to write a check and mail the bill physically. If this is not something that appeals to you, you may also want to set up a filing system at home that reminds you when you pay your bills on time. Remember to send your bills at least a few days before they are due to be sure they arrive on time. Reduce Your Credit Card Debt Credit card debt is a huge concern for most potential homeowners. Average credit card debt is around $2000 per household. Due to this fact, it is no wonder than more people are seeing red when it comes to credit cards. But, in order to improve credit card scores, the first step is paying these debts. If you have a higher balance, it can appear as if you are living outside of your means. That is the opposite of what a lender wants to see. Make an attempt to pay more than the minimum balance each month in order to reduce the balances as quickly as possible. How to Minimize the Risk If your substandard credit score requires you to consider a bad credit mortgage, you may be able to score points with a lender in several ways: if you have a stable work history, a solid income to debt ratio, or a large down payment. Any of these factors may allow you to negotiate a slightly more favorable interest rate. You can also minimize the risk of your bad credit mortgage by both choosing your mortgage lender and your mortgage carefully. Avoid any mortgage lender who does the following:

• Makes an attempt to charge a high amount of fees for your mortgage. Remember that the average conventional prime loan does not entail more than 1% of the loan's value in fees.
• If the lender attempts to sell you financial products or services that you do not require, such as unnecessary insurance.
• Offers a loan with mandatory arbitration. This clause means that you are not allowed to take the case to court if your home is threatened.
• Makes an attempt to take you in a direction that will result in you taking out a larger loan than you can handle. For example, offering a 100% or higher mortgage. These are extremely risky, because if the property market hits a slump, which it has by several estimations, you can end up owing more than the house is worth.

Many individuals who seek out a bad credit mortgage do so with the purpose of refinancing as soon as possible. They plan to repair their credit score in the mean time in order to qualify for a better interest rate. If this happens to be your primary intention, it is a good idea to take into account the costs of refinancing (closing costs apply when you are refinancing just as they do for the first mortgage). These costs are payable in cash, and you should also take into consideration whether or not you plan to move in the near future. If you are planning to move in five years or less, the costs of refinancing may not be offset by the lower interest rate on the second mortgage. It is possible to secure a mortgage with a low credit score, but it can be difficult. However, with persistence and a firm commitment to paying all future bills on time, you can put yourself in a much better position to secure a mortgage and purchase that home you have been dreaming of owning.

Brian Jenkins is a freelance writer who writes about economic issues and financial products pertaining to the mortgage industry such an adjustable rate mortgage or the <a href="http://www.absolutemortgageco.com/rates.aspx">lowest mortgage rate</a>.


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