Bad credit? Be careful when mortgage hunting

Have you ever heard of predatory lenders? If your credit is weak and you're shopping for a mortgage, you may be about to meet one head on. If you're shopping for a bad credit loan, it's best to get your introduction now.

Understanding predatory lenders

Predatory lenders are those who:

1. charge exorbitant or unjustified fees
2. encourage borrowers to lie about their situation in order to obtain a loan
3. knowingly lend more than they know the borrower can afford to repay
4. pressure borrowers to accept high-risk loans such as balloon loans, interest-only payments, and steep pre-payment penalties
5. adjust interest rates according to the race or national origin of the borrower

In short, they may get homeowners looking for bad credit mortgages in more financial trouble than they're already in.

Protect yourself

Here's how to avoid them:

1. Get a copy of your credit report from each of the three credit reporting agencies: Experian, Transunion, and Equifax. Review them carefully. Make sure that there are no errors. Contest them if you find them, and have them removed from your credit report.
2. Shop around. It will give you a chance to make sure that you're getting a deal that's in line with others.
3. Ask the lender the reason that you're in the higher-cost category. Credit dings will move off your credit report in time. If something is about to disappear, it might be worth waiting a month to reduce your costs.
4. Avoid lenders who treat you as if you have no choice but to take the deal they offer.
5. Avoid financing programs like balloon payments or interest-only loans that can drive up and mask the actual cost of the deal.
6. Do your own math. Make sure you can afford the payments-don't trust the lender to know what makes you comfortable.

Shopping for a bad credit mortgage is not that different from shopping with good credit. It just requires an extra layer of care to avoid confronting a wolf in lender's clothing.