A bad credit mortgage is not as rare as you may think. (Unnamed Copywriting)

A bad credit mortgage is not as rare as you may think.

A common misconception in today’s lending world is that there simply are no longer any programs available for someone to get a bad credit mortgage. It has become increasingly difficult to get approved for bad credit mortgage loans, but they are still in existence, and typically, will offer better interest rates than have ever been available before.

In the past, someone looking for a bad credit mortage didn’t have to look very hard. At the height of the refinance boom of two years ago, there were literally thousands of lenders offering bad credit morgages. Not only were there thousands of bad credit lenders, but each lender typically had hundreds of unique bat credit mortgage programs. Regardless of a borrower’s credit score or loan goals, there was likely a loan program that was suited for this type of borrower.

There were no differences between purchase mortgages and refinance loans either. Even borrowers with sub 500 credit scores were able to get approved with limited documentation to purchase a home with little to no money down.

The problem, of course, was that a large percentage of these sub-prime and non-conforming loans ended up in foreclosure and an even larger number at least ended up ion default. The banks were so accustomed to record mortgage profits for so long that they were completely unprepared for this eventuality. As fast as these bad credit lenders initially sprung up, they eventually fell.

So where does that leave someone with bad credit now? Now that there are no sub-prime or non-conforming lenders out there offering loans anymore, does that mean that there is no way for a bad credit borrower to get approved for a mortgage at all? The short answer is no.

The hole that these lenders left in the mortgage world was filled by the Federal Housing Administration. The US Department of Housing and Urban Development began offering FHA and VA loans to borrowers with bad credit, and started offering them at better terms than had been seen before for borrowers with less than perfect credit.

While there has been no return of the sub-prime and non-conforming lenders, the scope of the FHA program has continually expanded. There are no credit score limitations to the program and the interest rates are better than other financing options, even the ones available only to good credit borrowers. The main difference is that with an FHA loan, there is no change to the interest rate based on how much a person is borrowing. A borrower can borrow all the way up to 97% of their home’s value without being penalized on the interest rate. Conventional financing, even for borrowers with the best credit scores available tacks on hits to the interest rate depending on how high your loan amount is. So, in today’s market, it is very possible for a borrower with a 550 credit score to obtain a better mortgage rate than a borrower with a 700 score who utilized Conventional financing.

Even with the decline of the mortgage lending world, there is still a very strong option available for bad credit homeowners. The FHA program has made it possible for borrowers to still obtain the dream of owning a home.