So, you've had some cash management problems in the past. No big deal; it happens to the best of us. But now you want to buy a house and banks and lenders are either turning you away or expecting you to pay huge interest rates and points in the form of a bad credit loan mortgage. Getting a mortgage loan with bad credit does not have to be difficult or financially unwise. A thriving market for bad credit mortgages does exist for people with a FICO score of less than 620, but, as I'm sure you have observed, it takes more money out of your pocket than you would like. This is an unfortunate byproduct of the beast. Mortgages with bad credit borrowers cost more for everyone. The lender takes on more risk, which in the long run translates to more cost. The broker has to do more work to marry lender with borrower, and he has to get paid for his hard work. You are expected to help with those costs, but you can avoid being taken advantage of by either party by understanding how much someone like you should cost them on average. Start with your credit report. Get Equifax Credit Watch Gold 3-in-1 Now!

1. Get your credit report. Correct any mistakes before approaching mortgage lenders for bad credit loans. If your FICO score is below 620, expect to be taking on a bad credit mortgage. A FICO score of 400 constitutes very bad credit.
2. Pay off credit cards, bills, and other loans. Lenders want to see a debt-to-income ratio as close to zero as possible, and they like it when you have available lines of credit like credit cards. Save up, if you can, because most banks won't be willing to lend you much more than 80% of the value of the home you purchase.
   
3. Get some quotes on bad credit mortgages. Check out a few local banks and online mortgage brokers. Online mortgage lenders for bad credit are nice because you can get a lot of quotes quickly. Use a worksheet like this one to keep track of all of the important information.
4. Add up the winners. Add up your current monthly payments to your projected monthly payments. Can you afford a bad credit mortgage? As a general rule you do not want to pay out more than 40% of your income on debt - you need a cushion in case something unexpected happens, especially if you have had money management issues in the past. If a mortgage broker wants to charge more than 8 points or a mortgage bank wants more than 10% interest on the loan, you will need to strongly consider whether going ahead with the loan is a good investment.