There is no point in claiming that getting a home loan is an easy process, guaranteed to end in success. These more frugal times means the process is even more cautiously managed by lenders, so the chances of approval is far from assured. Nevertheless, a home loan with bad credit is attainable, and if some simple factors are considered, the chances of success are greatly increased.
Of course, home loans with poor credit should be tricky, not just because a it is statistically the largest loan likely to be taken out by any individual, but because bad credit scores make lenders that little bit nervous.
But, by satisfying the right criteria, home loan approval with bad credit is within reach. In fact, if some specific factors are paid special attention to, the likelihood is increased dramatically Cheap interest rates.
Never Underestimate the Down Payment
For many applicants, the down payment is not really considered to be part of the mortgage application process. In fact, it is a very important part of any application, with bad credit an element especially. There are two good reasons why.
First of all, the size of the down payment affects the size of the loan, which in turn affects the size of the monthly repayments. If an applicant wants to buy a property worth $200,000, and has paid a 10% down payment, it means the home loan is $180,000. If, however, they have paid 20%, the size of the loan is $160,000.
It is more likely to get home loan approval with poor credit for the lower sum, because the pressure to pay the lower monthly repayments will be less and the lender can be confident of getting their money back.
The second reason the down payment is significant to an application for a home loan with bad credit is what it reveals about the applicant.
Only disciplined savers would be capable of raising $20,000 or $40,000 to make the payment. So, it shows that the applicant is committed to getting their property, and is less likely to default on their home loan.
Remember that a bad credit score can be achieved rather easily, with only a couple of poor decisions needed to see the scores plummet. So, a dedication to good money management is exactly what the lender needs to see before home loan approval with poor credit can be granted.
The Property in Question
There is no point at all in trying to secure a home loan with bad credit on a house that is very expensive. The reason quite simply is the degree of debt that someone with bad credit scores would be taking on, and the preference for lenders to avoid the hassles that come with foreclosures. So, the lower the price of the house, the better.
Also, bear in mind the question of home equity, and the fact that debt was too high when house prices took a tumble a few years ago. Getting a too large loan can mean setting yourself up for a major fall.
The Right Lender
Getting the right loan deal from the right lender can make all the difference. Generally, online lenders are the best option, with the lowest rates and, because they tend to be experts in loans with bad credit, provide a better chance for home loan approval with bad credit.
More than anything else, though, the best home loans with poor credit can only be found after some extensive searching. So, do not choose the first good deal found, but create a shortlist of 3 or 5 options to carefully consider and select from.