Getting Home Loans With Bad Credit: A Guide To Help Approval Chances
Securing a home loan with bad credit is never easy. But there are ways to improve the chances of a successful application, like improving the debt-to-income ratio or making a larger down payment.
But the fact remains that securing mortgage approval is not an impossibility for bad credit borrowers, principally because the factors that matter in any loan application are not the credit ratings applicants may have.
With that in mind, what is needed to ensure home loan approval? Can a bad credit borrower match the typical criteria and conditions that mortgage providers lay down? And what measures can be taken to improve the chances of getting the green light?
What Mortgage Lenders Are Looking For
Knowing what the lender wants to see in an application is the best way to compile an application strong enough to be approved. When it comes to seeking home loans with bad credit, the key concerns are still affordability and repayment ability. Credit scores, however, have a very minimal impact on approval chances.
Establishing affordability comes down to two factors: the excess income available and the amount of debt that already exists. Securing mortgage approval is dependent on proving an ability to make the repayments, and this is only possible if it is established that a sufficient excess income in available.
The debt-to-income ratio is the clearest indication of affordability. It maintains that only 40% of the available income can be used to make loan repayments. If repayments on the home loan are more than that limit, then the application will be rejected.
Improving Your Approval Chances
There are several things that will improve your approval chances. One of the more effective is to address your debt-to-income ratio, and this can be done by reducing the amount of debt that is being faced. Once the amount of income going to existing debts is reduced, getting a home loan with bad credit becomes much more likely.
The best way to clear debts is to take out a consolidation loan and pay them off in full in one go. Having 4 or 5 individual loans with individual interest rates can be a financial drain, but replacing them with a single debt at more manageable terms frees up more excess income. This means a better debt-to-income ratio, which in turn improves the chances of securing mortgage approval.
Another move is to increase the size of the down payment made on the property in question. Usually, 10% of the purchase price is expected, but increasing it to 20%, for example, reduces the size of the required home loan greatly and helps to make the debt more affordable.
Finding the Best Lender
The final factor that should be considered is where to apply for a home loan with bad credit. There are plenty of mortgage providers out there, but not all are willing to offer terms that are very good. Even if the credit score and debt-to-income ratio are improved, they still charge higher interest rates.
Securing mortgage approval is more likely from subprime lenders, who are usually found online. The subprime choice is usually very expensive, with higher interest rates charged, but what makes them a plausible option is the fact that the mortgage term is longer, ensuring the monthly repayments are affordable.
Remember, however, that taking out a home loan is dependent on the debt being affordable in the long run. So, if the term is 40 years instead of 30, the lender needs to feel sure that income levels are assured for that period.
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ABOUT THE AUTHOR
Joycelyn Crawford is the author of this article. For more information about Easy Loans for Bad Credit and Bad Credit Home Loans please visit her site http://www.easyloanforyou.com