If you have less than perfect credit and are looking to get approved for a mortgage loan, be careful not to make some common, costly mistakes.  When dealing with sub-prime mortgage lenders or bad credit mortgage lenders, many people are taken advantage of because of their eagerness to get approved.  Choosing and settling on a mortgage lender or mortgage broker is a very important decision.  Make sure you don't make mistakes that you will regret later.

Ask yourself, the mortgage broker or lender these questions before you sign on the dotted line:

1.  Is there a pre-payment penalty on the loan?  Ask about this as soon as you are told you are approved.  A 6 month pre-payment penalty is probably ok, but 1 year, or two years?  Over 1 year is too long.  Find out how much the pre-payment penalty is.  Maybe its not much.  But if there is one, its most likely to be so much, that it would defeat the purpose of refinancing the loan before the penalty time is up.  If you are get a mortgage loan with a poor credit score, and then make your mortgage payments on time, you are likely to be able to refinance in 6 months to 1 year for a much better interest rate.  You don't want to hurt your chances of doing that with a heavy pre-payment penalty.  Sometimes brokers will neglect to tell you about one.

2.  What will the interest rate be?  Sounds obvious, but lock down exact numbers.  Don't settle for vague answers on this.  Brokers may promise you a low interest rate, but as it gets closer, end up locking you in at a much higher rate.  If you are doing a combo loan, 80/20, the second mortgage may end up being the one that has an interest rate that surprisingly jumps up as it gets close to the loan closing.  Try to negotiate a lower interest rate, especially if you are going through a mortgage broker, they will usually have some play in this area.

3.  Is my mortgage broker being too pushy?  If you feel your broker is being too pushy, there may be something in the loan that is not in your best interest.  Ask a lot of questions and don't be afraid to start searching elsewhere.  When getting a mortgage loan, you don't want to be in too big a hurry.

4.  Can I afford the payment even I am not able to refinance for a lower rate within 2-3 years?  Many people get into a sub-prime mortgage loan with a higher interest rate, just because they are happy to get approved, only to feel suffocated later, when they cannot refinance and get out from under the high payment.  If you don't think you could make the payment for at least the next 2-3 years with no problem, then you shouldn't be getting into the loan.

5.  What are my closing costs going to be, exactly?  Bad credit mortgage lenders and mortgage brokers know that the person they are extending the loan to doesn't have as many options.  These lenders and brokers can sometimes take advantage of that fact by upping the fees at closing.  Make sure you see what all of your fees are going to be in writing before you commit to the loan.  Compare those fees with other lenders and make sure they are comparable.  If there are a little high, try negotiating with your mortgage lender or broker.  They will usually be able to make changes there if they choose to.

It helps to choose a sub-prime mortgage lender based on a referral, one who has a good reputation.  Choose a company with a long standing reputation and make sure you feel comfortable working with them.

There are many lenders now, who specialize in bad credit mortgage loans.  These are the best lenders to start with.

Here are our recommended bad credit mortgage lenders: Top Recommended Mtg Lenders
For People With Credit Problems
-Updated 2008-: