While specially-formulated home mortgage loans for people with bad credit do have their advantages, approval is never a sure thing. There are some secrets to improving the chances of success, though.
There is much made of the fact that a bad credit history can be detrimental when it comes to buying a home. Traditional lenders, like banks, would have us believe we stand no chance, but options do exist. In fact, there are specially-formulated home mortgage loans for people with bad credit histories.
Many of these mortgages are available from online lenders, whose loan packages are more affordable and involve less in the way of fees and even charge interest rates. But perhaps most crucial is the fact that credit scores have no bearing on the application process, thereby ensuring a better approval chance.
For almost everyone, a home mortgage loan is the largest single personal debt they will take on, which explains the nervousness with which many approach them. But there are some secrets to preparing an application that can help to improve the chances of approval.
Be Proactive About Your Credit Score
This is most useful when applying to traditional lenders in particular, who usually place a large significance on the scores when assessing applications and the rate of interest to charge. While it is true that home mortgage loans for people with bad credit are already well structured, improving the credit score just a little can further improve the deal.
The most common proactive step is to take out a small personal loan, repay it without a hitch, raise the score a little and so ensure a better approval chance when it comes to the mortgage. A series of small loans, such as payday loans, means this can be done several times over a set period – perhaps 5 or 6 $1,000 loans over 12 months.
With each loan cleared, the credit rating is improved, which in turn improves the terms of a home mortgage loan. However, this tactic does require some time and patience.
Make a Large Down Payment
Making a larger down payment than is necessary send the message that an applicant is serious about taking on such a large debt. The significance of such a move is even more poignant when it comes to home mortgage loans for people with bad credit histories.
The reason is two-fold. Firstly, the size of the mortgage is lowered because a larger share of the purchase price is paid off. A 5% down payment on a property worth $250,000, only reduces the mortgage to $237,500. But a 20% down payment reduces it to $200,000, Unsurprisingly, the result is a much better approval chance.
Secondly, if a down payment of 20% ($50,000) is made, then the financial discipline needed to save that lump sum cannot be ignored. Lenders are only too happy to grant a home mortgage loan to someone so committed.
Think Outside the Box
Finally, thinking outside the box can result in more creative financing that will drastically improve the strength of the application. Being a person with a bad credit rating does not guarantee approval for a home mortgage loan for people with bad credit.
Creative financing can see the mortgage sum split into individual loans that may not only result in a better approval chance, but in the overall debt being reduced. For example, after a down payment of 10%, the mortgage sum required is $225,000. This could be borrowed through $200,000 mortgage over 30 years, and a $25,000 personal loan over 3 years.
While the size of the home mortgage loan is reduced, the personal loan repayments can be lower than the mortgage repayments. So, monthly repayments of $600 will lift the pressure over the first 3 years before the mortgage repayments begin, which may be as high as $1,200.
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