Bad credit ratings may not be preferred in a mortgage application, but even the lowest credit score is not damaging enough to rule out approval. With the availability of home loans for people with bad credit, practically anyone can secure the financing needed to buy a home Mount Stromlo.
There is no point in denying that bad credit borrowers have to work hard to compile an application strong enough to convince lenders to give the green light. In fact, securing mortgage approval is pretty hard to achieve. But there are options that are not just accessible, but also affordable.
The only catch is that some compromises must be made in order to get approval. These range from accepting a higher interest rate to providing a larger down payment. But the home loan needed to buy the home desired is within reach, provided the criteria is fully satisfied.
Satisfying the Criteria
Home hunters already know the drawn-out process involved in finding the property they want, but satisfying the qualifying criteria is not accomplished particularly quickly either. It can take 90 days to get approval on a mortgage, but when it comes to home loans for people with bad credit, it can take longer.
That is understandable, given the amount of money involved and the need for the lender to feel confident their investment is safe. Remember, securing mortgage approval is dependent on more than just being over 18 and a US citizen, it also involves income issues.
Income is important, but the debt-to-income ratio is more significant. This ratio stipulates that no more than 40% of income be spent on repaying loans and debts. All of the current debt repayments are added to the expected repayments of the home loan, and if it is above 40% of the monthly income, then the application will be rejected.
Getting Credit in Order
Of course, failing to adhere to the debt-to-income ratio is easily done, especially when the income earned each month is low or average – even large income earners can fail to get approval. But home loans for people with bad credit can be secured if credit conditions are improved.
Efforts to improve credit scores and lower existing debt need to be made several months before the application is submitted. The idea is that with each debt cleared, the ratio is lowered and more cash made available to cover the mortgage. And, as credit scores improve, interest rates fall. Together, the chances of securing mortgage approval are much improved.
There are two main ways to clear existing debt. Firstly, a consolidation loan can clear all debts in one fell swoop, leaving a single loan with lower monthly repayments. Secondly, a series of small short-term loans can clear individual debts one at a time. Whatever the strategy, the home loan becomes more accessible.
Down Payments and Security
There are other ways in which a home loan for people with bad credit becomes more attainable. Down payments reduce the size of the require mortgage sum, with a 10% down payment on a $200,000 home, for example, reducing the mortgage needed to $180,000.
The advantage is with a lower sum comes a lower interest rate, and a more affordable monthly repayment. And if it is more affordable, securing mortgage approval becomes easier. Of course, saving $20,000 in cash is a tough task too.
Perhaps that is why cosigners are becoming a preferred source of security. Their guarantee that monthly repayments will be made removes the risk factor, thereby lowering the interest rate dramatically. Conditions that make a cosigner acceptable for the home loan include having sufficient income and an excellent credit history.