Having a bad credit rating can be something of a hindrance when it comes to seeking a large loan. So, when it comes to seeking a home loan with bad credit, it is only to be expected that lenders would hesitate.
However, as with all financial arrangements, so long as the necessary criteria are met, and an ability to repay is confirmed, the chances of approval are high.
The good news is that securing loan approval is much more straightforward than many expect, and that by taking some simple steps the chances of enjoying a successful application is increased considerably. These steps range from the applicant getting an accurate impression of their actual credit status, to taking the time to locate the home loan with the best terms.
Knowing the True Financial Status
Examining the true state of their financial status helps applicants to work out their best options when it comes to making an application. When looking for a home loan with bad credit, convincing lenders that their investment is safe can come down to the smallest details. And so an accurate credit score can mean the difference of several thousand dollars per year in interest repayments.
It is always worth getting the credit score that is quoted reviewed. This is because it is always possible that past loan repayments or a recent loan that was cleared can sometimes slip through the net. This brings the score down, increasing the rate of interest to be charged, and thereby making the overall cost too much to afford. Securing loan approval is dependent on proving that repayments are affordable.
An accurate credit report can also be a sound basis on which to develop a loan strategy. Home loans are huge undertakings, so some pre-planning may need to be done to prepare the way before plunging into that level of debt.
Search for the Right Deals
Of course, finding the right lender with the right deal is all important too. Because of the reluctance that many lenders have in approving applications for home loans with bad credit, choosing the most receptive lender reduces the chances of rejection.
It is also worthwhile when the real terms are often hidden from view, and a variety of costs and fees are often found in the small print. Taking the time to search for the right lender is hugely beneficial, and the most productive way is to go on the internet. The range of offers that online lenders have can save significant amounts, which only improves the chances of securing loan approval.
However, when good deals are found, it is advisable to check out the lenders with the Better Business Bureau. There is always a chance of being caught out with home loans offered by unscrupulous lenders.
Consider a Larger Down Payment
A down payment can be very influential when it comes to convincing lenders to approve a home loan with bad credit. Since most lenders offer a maximum 90% mortgage, it means that 10% of the purchase price must come from elsewhere. This usually means a lot of saving in the build-up to making the application.
But the more that is saved the better the chances of securing loan approval. After all, a 20% down payment means that 80% of the purchase price is required as a mortgage, and with the sum to borrow reduced, managing the debt becomes easier too.
This has an overall positive effect on the lender, who know that borrowing $180,000 instead of $200,000 makes for savings of $200 – $400 per month, depending on the terms of the home loan. This can greatly decrease the risk of missing repayments.
By Christian Larkins