We aren't going to kid you. It's hard to buy or refinance a home if you have bad credit.

Subprime loans account for only about 3% of all mortgages being made, down from more than 20% just a couple of years ago.

That's not surprising since only seven of the 50 major banks recently surveyed by the Federal Reserve said they are still making loans to borrowers with bad credit and six of the seven reported tighter standards for subprime loans.

The costly and deceptive adjustable-rate loans that got so many subprime borrowers, such as option ARMs and 2/28 and 3/27 mortgages, have virtually disappeared.

That's a good thing.

They may have been easy to get, but they were horrible loans. Hundreds of thousands of borrowers are being pushed into foreclosure because they can't keep up with the rapidly rising payments.

The best -- indeed, about the only -- way to get financing right now is to qualify for a federally backed loan program.

If you can squeeze in, you'll get a safe loan at a reasonable rate and with little or no down payment. That's right -- 100% financing is available, just not easily available.

Freddie Mac and Fannie Mae are two large, government-chartered companies that buy loans from banks and mortgage companies. Their programs provide lenders with the money they loan to you if you meet all of Freddie Mac and Fannie Mae's qualifications.

With an FHA mortgage, the Federal Housing Administration guarantees your mortgage will be repaid, even if you default. That allows banks and mortgage companies to make loans they might otherwise turn down and to charge lower rates than they would without that guarantee.

If your credit score is 600 or above ...

... consider Fannie Mae's My Community Mortgage and Freddie Mac's Home Possible, which are designed to help first-time buyers.

They offer up to 100% financing and interest rates that are only slightly higher than those that borrowers with good credit are paying.

You can choose a 30- or 40-year, fixed-rate loan or a long-term ARM, which means the initial rate will be fixed for five to 10 years before it begins to reset, not the one month to three years in the bad, old, subprime loans.

The My Community Mortgage and Home Possible programs are limited to low- and middle-income borrowers, so there may be a maximum-income requirement in some areas.

Both companies also offer programs with no income caps specifically for borrowers with past credit problems.

Fannie Mae's Expanded Approval Mortgage offers 30- and 40-year, fixed-rate and long-term ARMs with up to 100% financing.

Freddie Mac's Affordable Merit Rate mortgage is a fixed-rate loan that requires a 5% down payment and a good payment history on previous mortgages. But if you make 24 consecutive on-time payments, Freddie Mac will cut your interest rate by 1 percentage point.

Here's where to locate nearby lenders that work with Fannie Mae. You'll have to ask lenders if they also participate in the various Freddie Mac programs.

If your credit score is in the upper 500s ...

... an FHA-guaranteed loan is a better bet because it doesn't look at your credit score, just your credit history. The FHA is willing to overlook some score-killing mistakes if there's a reasonable excuse, such as losing a job or serious illness.

You'll need a 3% down payment, but that money can come from state and local programs or private down payment assistance programs. It can also be a gift from family and friends.

Here's where to learn all about FHA loans, including where to find participating lenders near you.

You have a much better chance of qualifying for any loan ...

... if you have one or more of these things going for you:

• A steady job you've held for least two years that can be documented with W2 forms and tax returns.
• A low debt-to-income ratio. Your total monthly obligations (credit cards, loan payments, alimony -- anything you pay on a monthly basis), including the potential mortgage payment, should represent 36% of your income or less.
• A good record for paying your bills on time. The previous two years are the most important.
• Money in the bank. "It used to be you could get away with just having one or two months' mortgage payments in the bank. Now, lenders want to see six-to-10 months' worth of payments there," says mortgage broker Tom Scurlock of Silver Spring, Md.
• A big down payment. Paying 15% to 20% of the purchase price will get you a long way in today's market.

If your credit score is below 550 ...

... the general consensus is that you're out of luck.

Federal programs usually won't accept borrowers with scores that low. And even if you find a lender still willing to work with you, the interest rates and fees will be outrageous.

"In this case, your first step should be to call a lender and ... take the steps they suggest to improve your credit score," says Duffy Gilligan of First Medallion Mortgage in Chapel Hill, N.C.

Sometimes just paying your bills on time for six to 12 months can help while giving you time to save for a larger down payment. The lender also may be able to recommend which debts to pay first, inaccuracies to dispute, accounts to close and other actions that will help you reach a more acceptable level in a shorter amount of time.

We've got lots of tips on how to raise your credit score.

By Tracy Needham

Interest.com Contributing Editor

Have a question about your finances? Ask us at editors@interest.com.