If you need a subprime mortgage, these are challenging times, because the market for these risky loans is evaporating. It's still possible to find lenders to work with you, but it helps to plan ahead and be prepared to pay more than average for your mortgage.

Economists estimate that close to three million homeowners will see the monthly payments on their subprime mortgages reset to considerably higher amounts within the next two years. Based on this year's experience, a large percentage of these could also be at high risk for descending into foreclosure because they won't be able to make their newly calculated payments.

For lenders, this translates into acute skepticism, and a much more guarded and watchful attitude regarding anyone who wants to take out a subprime loan. Each time a borrower defaults, it costs the lender a huge amount of money. Since subprime borrowers represent tremendous risk for default, these are hard times for them. Some of the biggest subprime lenders have stopped offering loans completely to those with bad credit, and many have shut down their doors due to severe financial losses.

Pointers for scoring a bad credit loan

To improve your chances of qualifying for a loan, even though you may have had some problems with bad credit, take these points under consideration and act as quickly as possible to shore-up your credit rating.

• Lenders are tougher than ever on credit scores. If yours needs fixing, work on it right away. It can take months to get changes recorded on your credit report, and it can sometimes take years to implement all the steps necessary to bolster sagging ratings.
• If your credit score is around 700, try to bump it up. Scores above 720 have a much better chance of loan approval because they climb into a higher bracket that represents less risk to the lender.
• If you've paid off your credit card debt, keep the account open-but don't use it. Having open lines of credit that you don't take advantage of can strengthen your credit rating.
• Applying for new credit, or for a mortgage, can hurt your score, because each time a lender asks to see your credit report, it adds points against you. Shop around for the best mortgage, but avoid filling out lots of applications. Instead, pick the best lender for your situation and apply once to improve your chances.

Subprime help: FHA Loans

One alternative for some subprime borrowers is to consider a loan insured by the Federal Housing Administration, a government agency that helps low- and middle-income buyers secure mortgages at reasonable rates of interest. You'll need to follow their guidelines, which include paying for special mortgage insurance, and your chances will be greatly enhanced if you have decent credit. To learn more about FHA loans, visit their website.