Due to today’s economic realities, many traditional lenders who were once willing to offer mortgages to just about anyone are now drastically tightening their lending restriction on both new mortgages and mortgage refinances.  This is unfortunate because interest rates are at all time lows, and many individuals are unable to take advantage of the opportunity.

When looking to get mortgages bad credit is one of the largest hurdles to overcome.  Due to the tightened lending restrictions, traditional lenders require many of their borrowers to have a credit score above 740 to receive the best interest rates and a score above 680 even to be approved for a mortgage.

If an individual has a credit score below 680 and still wants to get a mortgage, there are various steps they can take to improve their odds of being approved.  To get a mortgage with bad credit the individual borrower may be required to put forth a larger down payment.  Many lenders require their borrowers with good credit to put down at least 10%.  For borrowers with bad credit, a mortgage lender will often want at least a 20% down payment.

If an individual already has a mortgage, but is looking for a refinance mortgage with bad credit, they will possibly run into even more problems.  The main problem that a borrower looking to refinance runs into is that their home’s value has declined.  Many housing markets across the country have experienced home prices falling by 20% or more.  This has caused many homeowners to have mortgage balances that exceed the value of their home.

The lack of equity in someone’s home coupled with a bad credit rating has prevented many people from being able to refinance their mortgage.  To refinance a mortgage, a person with bad credit will often need to have at least 20% equity in their home.