The housing bubble has burst. Now would be a great time to purchase a house with prices falling to their lowest levels. It would be a great time if you didn't have such a low FICO score. Lenders are reluctant to lend to people with low FICO scores because this type of loan is exactly what got them into so much trouble last year.

Early in the decade lenders created a lot of sub-prime mortgages. Sub-prime mortgages are home loans given to people with bad credit which means a score below 620. After five years, the typical period before the interest rate adjusts, the troubles began.

Part of some sub-prime loans is the balloon payment. The borrower makes monthly payments for a typical period of five years with the understanding that the balance of the loan will be due at the end of five years, called a balloon payment. Because this turned out to be a large sum of money, which the borrower a lot of the time did not have, the borrower would either default or be forced to refinance the loan. Refinancing the loan is good for the lender because he/she can charge high fees every time this is done. The borrower is not as lucky in these instances. After a default the borrower loses the home and the lender sells it.

Another tactic of some lenders was to charge a high interest rate on a loan regardless of the borrower's ability to repay the loan. The lender knew that after five years the borrower would not be able to make the payments that would be charged, but they went ahead with the deal anyway. This was the reason for several defaulted loans; the interest rate adjusted higher and the borrower could no longer afford to make the payments.

Not everyone fell into the sub-prime mortgage trap. Currently, interest rates have fallen to their lowest levels. Housing prices have fallen. Some people did not take a sub-prime loan because they knew they would not be able to afford the payments after they adjusted and remained in their apartments. These people knew that the house prices were artificially inflated and that it wouldn't be a good time to buy a house at such high prices. These people were wise and waited and kept themselves out of sub-prime mortgage loans.

You might be one of those people. You might have thought that the sub-prime mortgage was a bad deal for you and stayed away from it. Now that interest rates and housing prices are lower, you may have thought this would be a good time to buy a house. If your FICO score is below 620, you may find that it isn't possible to get anything but a sub-prime loan. This is not something you want to do.

The only thing for you to do is raise your credit score. You will not be able to do this overnight, but it will benefit you in more ways than just your housing situation. With a little patience, you will find yourself in your first house that you did not have to pay an arm and a leg for and with a higher credit score.