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Before beginning your search, it is imperative that you know exactly where your credit score is. Many people fall into what I call the Sub-Prime Trap - they have less than perfect credit and an unscrupulous or inexperienced loan officer just puts them into a sub-prime loan which of course comes with higher interest rates.

Often, those with less than perfect credit can be approved for a Fannie Mae or Freddie Mac loan. These are two government sponsored agencies that purchase most of the mortgages in the country. When lenders and brokers advertise their rates, typically, those loans are sold to Fannie or Freddie. Both offer what is known as "automated underwriting" (AU), which means that the lender or broker inputs or uploads a borrowers personal information such as income, assets, value of home, etc., into their program (Fannie's is called Desktop Originator or Desktop Underwriter; Freddie's is called Loan Prospector).

The AU "engine" then underwrites the loan. It will not reject the loan... if it cannot approve a loan, it "refers" it, which means a manual review of the file is required. The file can then sometimes be tweaked and resubmitted. If it is accepted, the loan is approved.

The point is this - AU's decisions take into account many different aspects of your profile... not just your credit. Someone with sub par credit may still be approved if say they have a lot of equity in their home or maybe they have more than sufficient assets. Maybe their income is at a level that will offset some sloppy credit.

There is no real minimum credit score required, although it's good to be somewhere in the 600's. But even a high 500 score may be approved. If you're in the high 500's or low 600's, make sure that your lender or broker submits to either Fannie Mae or Freddie Mac - not all do. There are many lenders and brokers that specialize in sub-prime loans - if you go into one of these shops they will definitely throw you into a sub prime loan without batting an eye. All the while, you possibly could have gotten a Fannie or Freddie loan at lower interest rates.

Here's a couple of resources. First to check your credit, go to AnnualCreditReport.com. You may access your credit for no charge once each year.

Be very careful about applying for a mortgage on-line. Many mortgage sites are not lenders or brokers at all; they simply sell your application as leads to lenders or brokers. The best known of these lead companies is LendingTree.com. They sell their leads to 4 or 5 lenders which supposedly compete against each other. They pay enormous fees to Lendingtree. Those fees need to be made up somehow... possibly their borrowers? Also, when you apply through these companies - LendersCompete.com is another one, multiple credit inquiries are generated and can lower your score. One site that offers multiple quotes with only one credit inquiry is Mortgage123.com.

It's also good to check locally. But always make sure the lender or broker offers all types of loans - Fannie Mae, Freddie Mac, FHA, VA and make sure you are working with a knowledgeable and ethical loan officer. You can go to the greatest mortgage company in the country but if your loan officer is lousy, you will have a lousy experience.

Learn more about this author, Ron Borg.
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