Applying for home loans with bad credit can be a stressful experience, but by taking some simple steps, the chances of securing approval are improved greatly. We give details on 3 such steps worth taking.
When it comes to seeking home loans with bad credit, there are a lot of reasons to suggest that approval will be hard to come by. By and large, lenders are not fully comfortable with lending to bad credit borrowers, but when the sum involved is in the hundreds of thousands of dollars, the risk is often seen as too great.
Thankfully, there are ways around this kind of problem and, while it is never guaranteed, securing mortgage approval despite poor credit should never be fully ruled out either. The principal concern is to convince the lender that their loan is safe and repayments will be received without any complication.
With this in mind, there are several things that an applicant can do to enhance their chances of getting their home loan application approved. Here we list just 3 of them.
Show Evidence Of A Positive Credit Habit
Just because your credit score is low that is not to say that your credit reputation is non-existent. Financial pressures may have made repaying your credit cards and personal loans on time difficult, but when seeking a home loan with bad credit, confirming a documented habit of payment can be invaluable.
For example, tenants should provide documented proof that they have continuously paid their rent on time. This can be done with a letter of confirmation from the landlord, or by producing bank transactions that show rental payments made on time. This track record may help ensure mortgage approval despite poor credit.
It is worth considering that lenders will understand better the problems that may have existed with loan repayments, if other commitments are being met consistently. However, that positive impression is not enough to swing the decision on a home loan application.
Offer a Higher Down Payment
The significance of the down payments should not be overlooked. This is because it has a direct effect on the size of the mortgage required. And the lower the sum needed, the lower the debt and the more affordable the repayments are. When applying of a home loan with bad credit, this can prove influential.
Usually, a down payment of between 5% and 10% is required but by increasing the down payment to 15% or even 20%, securing mortgage approval despite poor credit becomes much more likely. It can mean a difference of as much as $200 each month in repayments.
Of course, the challenge is to save up that amount of cash, but there are 80-20 home loans available that can solve that problem, with the first 20% of the mortgage repaid under different terms. Alternatively, a personal loan can be secured from a lender.
Reveal Pay Hikes and Promotions
Modesty is a positive trait in people, but unfortunately it does little good when looking for a home loan with bad credit. Mortgage providers are really only interested in whether their loan can be repaid without a hitch over the lifetime of the mortgage.
Having a full-time job is a good start, but showing ambition and progress is extremely useful. It suggests what financial difficulties exist now will disappear. For this reason it is a good idea to highlight a recent promotion or pay rise.
Of course, securing mortgage approval despite poor credit is never straightforward, and a promotion today is no guarantee against redundancy in the future. But it does send out the right signals when the home loan application is being considered.