Bad credit mortgage loans are also called sub prime mortgages and these loans are offered to the homebuyers with poor credit rating. Usually conventional loans are not offered to the homebuyers with poor credit. The risks of default with bad credit mortgage loans are much higher. So quite naturally, the rate of interest associated with bad credit mortgage is much higher.
The most important factor that determines whether or not an applicant is a bad credit mortgage applicant is the credit score. Credit score varies between 300 and 900. Higher credit score indicates the creditworthiness of the applicant and vice versa. Several factors which lower down the credit score of an applicant include late payments, non payments, current amount of debt, types of credit accounts, credit history length etc. For a mortgage applicant with low credit, chances of getting the loan are less. Usually, credit score above 620 is considered as good. Credit score below that range is considered as bad. Apart from credit score, there are some other factors which determine whether or not an applicant is a bad credit mortgage loan applicant. Delinquency in mortgage payments, non-payments, filing of bankruptcy within the past 24 months, debt to income ratio etc determine whether or not an applicant is a bad credit mortgage applicant. Interestingly, it is to be noted that all these factors are also responsible for determining your credit score.
Given the importance of credit score, it is highly important to put in serious efforts to improve credit score. By following some financial best practices such as timely payments, non-default, prudent usage of credit cards etc, one can improve his or her credit score. This will augment his or her chances to get a new mortgage loans with better terms.