Why would loan providers disregard bad credit history when funding mortgages? Aren't loan providers afraid that the customer won't be able to pay off the loan? Even when clients have a good credit history it's impossible to predict if they'll make good on their loan, and borrowers with bad credit history have a record of falling behind on their payments.

Many astute mortgage loan providers agree to lend to people with bad credit, not out of charity but based on the FICO credit scores.

Borrowers with scores of 720 and above have loan providers chasing after them to take out mortgages, and borrowers who have credit scores ranging from 600 to 700 can also get good mortgage deals. Borrowers earning credit scores of 500 and below are considered to have bad credit. Most bad credit mortgages are used to purchase or build homes. If the buyer is a first-time homeowner, they may be eligible for a special first-time buyer mortgage.

For the protection of the lender, someone taking a bad credit mortgage cannot borrow as much as with other mortgages. This lowers the risk for lenders the borrower defaults on the loan. The borrower will have to make a deposit of greater size, too. Required deposits for regular mortgages are about 25%, but the deposit for bad credit mortgage may be much higher to cover the risk of lending.

Some unscrupulous loan providers claim that bad credit mortgages are rarely approved and that borrowers wouldn't have been able to mortgage their house without the special assistance of their company's bad credit program, charging high interest rates and fees. Many borrowers with bad credit believe them and pay far more than they should for broker services – so shop around for a mortgage lender who won't take advantage of your bad credit history.