Earlier, having bad credit was the greatest detriment to getting a mortgage approved. However, today there are a vast number of companies who specialize in providing mortgages to people with bad credit. Even a large number of mainstream companies (read: highly reputable companies) are joining the fray. Mortgages to people with a bad credit history are today considered to be big business.

Bad credit mortgage companies, also called sub-prime mortgage companies, rely on FICO scores to determine the creditworthiness of a person. These scores are available with agencies such as Equifax, Experian and Trans Union Corporation. A FICO credit score of less than 620 is generally considered bad credit. Though mortgage companies today do not shirk from giving loans to bad credit people, they do not typically provide any mortgages to people below FICO scores of 500.

The bad news is that many mortgage companies do not hesitate in taking advantage of the precarious situation their bad credit history clients are in. This is shown by the way they charge higher rates of interest than people with good credit. This means more business in the bad credit mortgage market. In addition, people with bad credit need to make a down payment (typically at least 20%) to prove their earnestness to the purpose of taking the mortgage. This is good to the borrowers, as it makes repayment easier. Bad credit borrowers are also obliged to pay mortgage insurance– only that the rates of interest may be marginally higher.

Yet today, with new laws being passed, the distinction between people with good and bad credit is blurring. Mortgage companies are charging lower rates of interest than before. With the advent of the new economic term ‘non-status’, which includes those self-employed people who cannot prove their accountability, several people have been subtracted from the bad credit category. The interest rates for non-status people are almost the same as that of people with good credit.

Companies specializing in bad credit mortgages are extensively advertising on channels such as the internet. They invite people to get pre-qualified and fill online application forms. Such companies are doing a great business in the market of bad credit mortgages.

However, people with bad credit must be wary of companies that are looking to fleece them. Some unscrupulous companies may create a psychological fear in the minds of their clients that they would not get loans elsewhere, so they can ensnare them for higher rates of interest. It is always advisable to shop around to hunt for the best bad credit mortgage company in the market.

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