Home Loans For People With Bad Credit: 3 Security Options That Can Seal Approval

There are lenders willing to grant home loans for people with bad credit, but as is the case with all loans, there are conditions that have to be satisfied first. Sometimes, the income is not quite high enough or perhaps the debt-to-income ratio is borderline. In these cases, something extra is needed to seal the deal.The challenge of securing approval despite bad credit comes down to convincing lenders that repayments will be made without a hitch. Offering some kind of security can play a big part in achieving that, and there are three main kinds that can be considered.Of course, a home loan involves a very large sum of money, so it is often necessary to think outside the box. But lenders are receptive to the idea of reducing their risk.1. CollateralCollateral is the first thing we think of when considering security with a loan application. Of course, usually it is an item of collateral that is worth the value of the personal loan, and is worth nothing like the amount of money needed to buy a home. But when it comes to home loans for people with bad credit, it is possible to source items to cut the overall risk factor.It is an accepted fact that the property being purchased is the collateral against the mortgage provided. That is normal practice, so it is never an obscure factor to consider. However, it is also possible to use other items to ensure approval despite bad credit. Negotiations with your mortgage provider need to be detailed.For example, to secure a home loan to buy a property worth $150,000, it may be necessary to offer equity on another property of $50,000. That reduces the amount at risk to $100,000, prompting an interest rate reduction.2. Down PaymentA second consideration is not strictly a form of security, but just as offering some collateral against a share of the property, a down payment reduces the amount of risk that the lender takes on. Not only that, but lenders are more open to offer home loans for people with bad credit because the size of the loan itself falls.A down payment is made primarily to secure the property, with acceptance of the payment confirming the deal is done. Normally, it is around 10% of the value of the property, though this can vary.  So, a property worth $150,000 would need a payment of $15,000. This lowers the required mortgage to $135,000.A larger down payment can help in securing approval despite bad credit, and with a lower loan comes a lower monthly repayment and more affordable terms. The challenge is in saving the down payment, with this requiring considerable time and discipline. But with it, a home loan can be secured.3. CosignerMore than any other kind of security, a cosigner can play a major role in convincing lenders to approve a home loan for people with bad credit. This is because the role of the cosigner is to guarantee the monthly repayments, thus removing the risk involved for the lender. It also means the interest rate charged falls.However, to secure approval despite bad credit, a cosigner has to have an excellent credit history and ample income to cover the repayments if the borrower is unable to make them. So, it is important to choose the right person for the job.Remember too that a home loan is a long-term commitment, perhaps lasting 30 years, so the cosigner needs to accept the responsibility completely.