Applications for a home loan with bad credit can hardly be guaranteed approval when the financial pressures of modern living dictating against those with bad credit histories. But that is not to say that bad credit borrowers have no chance of buying the home they want. As long as the application is strong, the application can be successful.
Remember that bad credit scores have only a minimal influence over any loan application, and even when it comes to securing mortgage approval, and the sizable debt that it creates, the debt-to-income ratio the applicant has and the down payment that has been saved, is of greater interest to mortgage providers.
Ensuring that these aspects of an application are in good order is the best route towards approval. Once lenders are confident of getting their money back on the home loan, rejection is hard to justify. So, what should be looked out for?
Understand Your Credit Status
Building a strong loan application starts with understanding the position that is held. There is no point in pretending everything is rosy when it is not. Knowing your credit score and how it was calculated provides insight into how the lender will view your application. When applying for a home loan with bad credit, knowing your own weaknesses is very useful.
Your credit report can be sourced (for a small fee) from a credit agency, and in it details that have affected the credit score can be seen. With this information, a strategy can be devised to strengthen the application. Securing mortgage approval often comes down to the smallest details.
Also, with the credit scores known, applicants can assess what home loan terms are good and bad, and with that can accurately assess the value of any prospective loan source.
Address The Credit Score
There are only a few ways to secure a home loan with bad credit, but probably the most logical is to improve the credit score before submitting an application. And how can the score be improved? Well, the most immediate impact is made by a consolidation loan, which can be used to pay off existing debts.
Every debt that is cleared is marked as fully repaid, and so the credit score is increased to reflect this. Of course, if the overall debts are $50,000, then the consolidation loan needs to be very large. But securing mortgage approval is certainly more likely when the credit score is higher.
A single consolidation loan is not always possible. In such cases, taking out a series of small personal loans, of maybe just $1,000 each, allows for single debts to be cleared. However, these loans can come with very high interest (25%) and with repayment schedules of just 30 days. These are expensive loans, but over time can have the desired effect and improve the chances of getting a home loan.
Make a Large Down Payment
Providing a large down payment as part of an application for a home loan with bad credit can help the chances of approval significantly. This is because the size of the required mortgage falls in proportion to the down payment. For example, if a home is worth $200,000, a 10% down payment reduces the required loan to $180,000. A 20% down payment sees it fall to $160,000.
And with lower mortgages, the interest is lower and the repayments are lower. This can only help in securing mortgage approval, and with the whole deal so much more affordable, there is significantly less chance of defaulting on the home loan.
Everyone, it seems, wins from this situation. However, it does take a considerable amount of effort to save a large lump sum.