Home Loan With Bad Credit: Why Approval is Possible

The idea that a home loan with bad credit is accessible to people wanting to buy a home may come as a surprise. After all, bad credit scores are supposed to make financing of any type more difficult to get. When it comes to a loan of more than $100,000, it only makes sense that bad credit borrowers should have a hard time.But the truth is that lenders are happy to grant loans if the right boxes are ticked. So, securing mortgage approval with a less-than-perfect credit history is not something that needs to be ruled out.Still, there are some realistic measures needed to improve the chances, and for every home loan applicant, knowing them can prove invaluable.The Problem With Bad CreditThere is no avoiding the fact that having a bad credit rating is going to have a negative effect on loan applications. While the good news is that applications cannot fail on the basis of credit scores alone, they do affect the interest rate to be charged. Therefore, a home loan with bad credit part of the equation is more expensive.Simply put, the score can raise the amount of each monthly repayment, thereby making the task of securing mortgage approval that bit harder. Depending on the size of the mortgage and the term of the loan, the increase could translate to $50 to $200 per month. So, it is nothing to be ignored.However, lenders do look at the reasons for bad credit scores, and have a more understanding view of applicants who have suffered some financial bad luck. Applicants who have earned low scores due to bad money management are less likely to get a home loan.Tricks to Getting ApprovalHelping the application along is an important part of the overall process. And there are two key measures to take that can greatly improve the chances of getting a home loan with bad credit. The first is to provide a large down payment, while the second is to improve the credit score as much as possible in advance.The down payment is hugely influential for the simple reason that it lowers the size of the mortgage actually needed to purchase the property. Usually, a percentage as small as 5% is acceptable, but by increasing that figure to 10%, or even 20%, securing mortgage approval becomes more likely. The principal borrowed is lower, so the monthly repayments are lower.Improving the credit score can be done by clearing some, if not all, of the existing debt. A consolidation loan can be used to buy out all remaining debts, replacing them with a single lower monthly repayment. What is more, cleared debts immediately improve the credits score, while also freeing up extra cash for the home loan.Show Genuine CommitmentA mortgage is probably going to be the biggest single debt that any person takes on in their lifetime. Little wonder that lenders want to see signs of commitment before approving a home loan with bad credit. There are several ways in which this can be conveyed - in fact, applicants who have either improved their credit score or saved a large down payment already have.For both of these measures, the applicant needs to have shown great financial discipline. This tells the lender that the applicant is very serious about the loan, giving the lender every reason to feel confident. As a result, securing mortgage approval becomes more likely.Of course, do not forget that other expenses come with buying a home, so the home loan is only the beginning. Closure fees need to be paid, as well as the need to buy furniture, fixtures and probably some minor home improvement projects too.