Are Poor Credit Home Loans Still Available?

Reader Question: "I used to see a lot of websites offering poor credit home loans for folks like me. But when I do a search for this online today, all I can find are articles and advice. Are there any home loans for people with poor credit anymore? Is this one of the things that changed when the economy went bad?"

When a lender gives a mortgage to somebody with bad credit, it's referred to as a subprime mortgage loan. "Subprime" simply means the borrower's credit score is below the ideal or "prime" range the lender prefers. So they lump those people into a separate category, with different qualification criteria and different interest rates.

That's the vocabulary side of things. Now let's talk briefly about the history side of things. In the late 90's and early 2000's, subprime lending was a booming business. Lenders were giving home loans to people with poor credit in record numbers, and they were making billions of dollars by charging higher interest rates.

You know the rest. Millions of these people ended up in foreclosure, but they had purchased homes they couldn't really afford. So we had a subprime crisis. Then we had a housing crisis. And, eventually, our economy went into recession.

So what does all of this mean for people with credit problems? It means that those poor credit (subprime) home loans are much harder to come by today. In fact, they've practically become extinct. They will probably make a comeback at some point, because the rampant greed of Americans always wins out over common sense. But that comeback is probably several years away -- or so I hope.

How to Fix a Poor Credit Situation

Here is the bottom line. People with poor credit should focus on improving their scores before pursuing a mortgage loan to buy a house. This will open more doors for you, and it will also help you secure a lower interest rate on the loan. Remember, even if you do get approved for a home loan with poor credit, you are going to pay an extremely high interest rate (when compared to a borrower with a good score).

If you need help improving your credit score before buying a house, you'll find plenty of advice to help you on this website. We have dozens of articles on the subject of how to raise your score, and plenty of home loan advice too.

If you have additional questions about the connection between credit and mortgages, you might want to try using the search tool at the top of this page. There are more than 250 Q&A sessions on this blog (at the time of this publication), so you're bound to find some helpful information that relates to your situation.

Disclaimer: This article about poor credit home loans is for educational purposes only. We are not acting as financial advisors. You should not make any financial decisions based solely on the information provided herein.