Credit troubles mean mortgage troubles, because it's not that easy to find home financing when your credit score is low.

Remember that lovable Waldo character, who was always hiding within the vibrant illustrations of the Where's Waldo books? It was so hard to find him, even though you always knew exactly what he was wearing. Unfortunately, life as an adult leaves little room for finding Waldo; instead, you're stuck searching for things like better paying jobs and bad credit mortgages.

If you've had trouble managing your credit in the past, be prepared for an uphill climb as you search for a suitable mortgage loan. Lenders are getting more conservative, and options for credit-challenged borrowers are increasingly harder to find. The best choices are government-backed, insured programs. Take a look at the list below, and then put in a call to your lender to see if one of them might be right for you.

Fannie Mae's "MyCommunityMortgage" (MCM)

The MCM program offers a variety of loan structures catering to those who have low cash reserves and minimal credit histories. Loans available under MCM include 30- and 40-year fixed-rate mortgages (FRMs), plus FRMs with 5-year and 10-year interest-only periods. Notably, the credit evaluation process will consider non-traditional sources of credit. This makes the MCM a great option if you've been turned away from other lenders for having nothing on your credit report. These loans require minimal levels of mortgage insurance.

Freddie Mac's "Home Possible"

Home Possible mortgages by Freddie Mac also come in various forms, including 40-year FRMs. As with the MCM programs, the mortgage insurance and down payment requirements on Home Possible mortgages are minimal. On some of the loans, there's no maximum monthly housing expense-to-income ratio, which could be helpful if your low income has prevented you from securing other mortgages. Realistically, you'll need a credit score of 600 or higher to qualify for a Home Possible loan.

Freddie Mac's "Affordable Merit" Mortgage

Affordable Merit Mortgages are only available in the 30-year, FRM format. Interest rates are typically lower than credit-challenged borrowers could otherwise obtain. In addition, after your loan has funded, you can earn a 1 percent rate reduction by making 24 consecutive payments on time. You'll have to scrape together a 5 percent down payment, however, to qualify.

Federal Housing Administration (FHA)

The FHA has several loan programs offering low-cost mortgage insurance, low down payment requirements, and flexible underwriting standards. FHA loans will provide up to 97 percent financing at competitive interest rates. The FHA approval process considers your credit history, but not your credit score. To qualify, you'll need to demonstrate a recent trend of steady employment and responsible credit management.

In the end, finding Waldo may end up being easier than finding your bad credit mortgage. If you tap out the options without success, focus your energies on repairing your credit problems. That's an endeavor that always pays dividends in the long run.

Published on June 21, 2008