Qualifying for a mortgage loan or refinance with bad credit is a lot harder than it used to be. Given that widespread defaults on subprime mortgages triggered the financial meltdown of a few years ago, lenders have become much more cautious about who they'll extend credit to.

That doesn't mean it's impossible to get a home loan with poor credit, but the minimum standards are higher. Also, you'll likely find it a lot more costly to get a mortgage or refinance with less-than-perfect credit.

So what's the bottom line? Your best bet for qualifying for a home loan - either a purchase or mortgage refinance - with bad credit is either the FHA or the VA if you're a military veteran. Both officially will accept loans with FICO credit scores as low as 580, although individual lenders will likely require a minimum or at least 620.

The FHA and VA don't actually write mortgages - they insure mortgages that meet their standards that are issued by qualified lenders. So it's up to the lenders themselves to decide what credit scores they'll accept, and at what terms.

Consider brokers, small lenders

Some smaller lenders may be willing to accept a lower credit score than the major banks will, particularly community banks or credit unions. If you have poor credit, it's more important than ever to shop around and compare different lenders. You'll likely not only find a difference in their willingness to lend, but also significant variety in the terms they're willing to offer.

A mortgage broker can also be a smart choice when you have bad credit, as they're in the business of sifting through multiple lenders to find one that meets your needs, although you will pay a premium for this service.

One thing you won't be able to escape is that getting a mortgage with poor credit is going to be costly. According to the Fair Isaac Co., which invented the FICO scoring system, a borrower with a score in the 620-639 range can expect to pay an interest rate about 1.6 percentage points higher on a 30-year loan than someone with near-perfect credit of 760 or above - about 6.3 percent instead of 4.7 percent for the "ideal" borrower. That works out to about an additional $100 a month for each $100,000 of your mortgage - not cheap.

Improving your credit

So what can you do if you've got bad credit? The first thing you should consider is making sure your credit reports are accurate and that you're not being penalized for bad information. By law, you're entitled to receive a free annual copy of your credit report from each of the three major credit reporting agencies - Transunion, Experian and Equifax. You can order these through the site they maintain for that purpose, www.annualcreditreport.com, though you'll need to pay if you want your actual FICO score.

You can also sign up for a credit monitoring service that will allow you to track the status of your credit and alert you to developments that may affect it, as well as providing tools that show how different situations affect your credit. Many of these also provide a credit score as part of their services.

Waiting for better scores

The best strategy for dealing with a bad credit score may be to try to improve your credit rating and apply for a mortgage at a later date. Generally, the impact of most negative items on your credit report begins to diminish after about two years, so if you can maintain a good payment record on your other debts over that time, your credit should show significant improvement over a year or two.

Of course, a foreclosure stays on your credit for seven years and a bankruptcy for 10, but even here, the major negative impacts begin to diminish after a few years, and you may be able to qualify for a mortgage again within three years of such an event.

Waiting means you won't be able to take advantage of today's rates, but you may find that by allowing your score to improve, the rates you'll be able to get with good credit in a few years may be better than what you could get today with poor credit.

If you need a mortgage now

If waiting isn't an option - you need to refinance or buy a home right now - there are some options to consider. One is to get a co-signer, usually a close relative, to help you qualify. But bear in mind that in the event you default, the co-signer will be liable for the full value of the mortgage, so you only want to use this approach with someone you have a solid and trustworthy relationship with, and only if you are certain you will be able to meet your obligations.

Another possibility for couples, when only one partner has poor credit, is to seek a mortgage or refinance solely in the name of the partner with good credit. However, this means you won't be able to list both persons' income and assets on the mortgage application - just those of the partner who's actually applying for the loan, which can seriously limit how much you can borrow.

Don't assume that you have to borrow right now just because interest rates and home prices are low right now. Whatever approach you take - borrowing now or working to improve your credit - should depend on careful assessment of what makes the most sense for you over the long term.