Normally, a low credit score is seen as a sure sign that applications for a mortgage or home loan will fail. But the truth is that is it possible to get a home loan with bad credit hanging over the head of the applicant.
It does seem to be rather illogical that anyone would lend hundreds of thousands of dollars to a person that is unreliable in repaying their debt, but there are reasons why bad credit home loans exist. Not least is that fact that lenders understand the realities of the economic situation for so many people. Not everyone with low credit scores are irresponsible with their money.
There are, of course, conditions and terms that can make a mortgage unrealistic to many of us, but there is no reason why home loan approval despite bad credit should be unattainable. For any applicant, once the basic criteria are met and the application stands against sound reasoning, the home loan can get the green light.
Three Key Areas to Consider
For any application, there are three key areas that need to be carefully considered before even filling out an application form. These areas are hugely important when seeking a home loan with bad credit, and include the size of the down payment, the provision of a realistic budget and approaching the right lender.
The Down Payment
This is a hugely influential aspect of any application. If the down payment being made on a property is small, then the size of the bad credit home loan is bigger; alternatively, if the down payment is large, then the required loan amount is less. Logically, therefore, the home loan repayments will be more manageable if the loan is smaller.
However, there is another factor that lenders look at when considering home loan approval despite bad credit. A down payment is a large lump sum, and the applicant will likely have saved in order to get it together. Saving ,000 requires financial discipline, which is exactly the type for trait lenders like to see in their borrowers.
A Realistic Budget
There is no point in seeking a home loan with bad credit if the property is outside your financial reach. Someone who earns ,000 per year is not going to be able to afford the repayments on a million home. Approaching a lender on these terms is almost certainly going to end with disappointment.
It is essential that the math is completed before an application is made, even before a home is chosen. Take a careful look at your excess income and how much of it can realistically be dedicated to repaying a bad credit home loan. Lenders apply a debt-to-income ratio to applications, whereby a 40:60 ratio is considered the limit, if future financial troubles are to be avoided.
This is why an applicant can get a home loan approval despite bad credit while another with a good credit rating might be rejected.
The Right Lender
There is a vast array of lenders in the market, offering better deals for home loans with bad credit than your local bank. Shopping around can result in finding one offering a bad credit home loan that suits your particular financial situation.
An alternative is to go online and compare the rates and offers of literally thousands of lenders in a few minutes. Many online lenders specialize in bad credit loans, so the chances of getting home loan approval, despite bad credit, is far more likely.
Check out any prospective lenders with the Better Business Bureau before signing up to any home loan with bad credit, but this is a realistic route to securing the mortgage loan needed.