I used to work for a mortgage banker doing pre-qualification for sub-prime loans. I dealt with many people with poor credit scores. There were a few absolute no-nos, however. Here is what I advise you to consider before you apply for a loan:
1. YOUR AVERAGE CREDIT SCORE MUST BE ABOVE 630.
We outright rejected anyone with scores less than 630. They didn't even get to step two. The higher the credit score, the better interest rate we could provide.
Keep in mind that your credit score will fluctuate over a year, depending on your solvency and how you pay your bills. If you are a few points off (600-620), perhaps let the mortgage know about your situation, and attempt again when your score is better.
2. DEBT TO INCOME RATIO MUST BE GOOD
If you have more money going out than coming in, you have a poor debt to income ration. If you have some lee-way as far as disposable income goes, you have a better chance of getting a home loan.
If you have outstanding balances due, try to pay off as much of your debt as possible before you attempt to get a home loan.
3. BANKRUPTCY OK, MISSING A MORTGAGE PAYMENT, NO
This was a serious one. If a lender had missed a mortgage payment for any reason whatsoever, they would be placed under extreme scrutiny.
Chapter 7 Bankruptcy was considered ok, as long as the final date was more than six months ago. Chapter 13 applicants were placed slightly hired than Chapter 7, but again, some scrutiny.
4. SHOP AROUND
Each mortgage company has its benefits; I worked for a mortgage BANKER which is entirely different than a mortgage BROKER. Learn who can help you get the best deal on a home loan.
But be careful when you shop around, they must run a credit check for each qualification, and that can lower your credit score by a few points. If possible, obtain a copy of your credit report and use that instead of having your credit checked each time you apply.
Summary
Getting a home loan is a bit of a jigsaw puzzle: your financial history has to be understood by a mortgage lender. Your desires for the American Dream of home-ownership will only come true with honesty and hard work.