Home Loans With Bad Credit: Why Lenders Accommodate Bad Credit Homebuyers

By our understanding, having a low credit score means buying a home becomes a pipe dream. We have to regain our strong credit status before any lender is willing to consider our application. But, in fact, getting home loans with bad credit is no dream.Of course, a credit rating will have an influence over the application process but it is far from the deciding factor that many traditional lenders will testify. What is true, is that other issues, like employment status and the degree of debt already faced by the applicant, have far greater influence. So, securing mortgage approval despite poor credit ratings is a challenge – but not an impossible one.The good news is that qualifying for a home loan remains pretty straight forward, even for bad credit borrowers. And since mortgage providers are willing to accommodate that niche in the lending market, there are options available. But what is done to accommodate this niche?Being Considered Despite Poor CreditLenders will not consider applicants unless they meet the basic criteria to qualify for a loan, and it is no different when it comes to applying for a home loan with bad credit. These basic criteria really refer to the legal issue of age (applicants must be over 18), citizenship (be US citizens) and have a sound employment status (held full-time employment for at least 6 months).Only when these boxes are ticked can an application be seriously considered for approval. For example, the specific terms of an employment status are examined, and the details of the credit report submitted by the applicant are also looked at in great detail.Securing approval despite poor credit ratings is not a problem when these aspects are in good order. However, it is still necessary to wait anything between 60 and 90 days before a decision is reached. What is important is that qualification for a home loan is confirmed, and the process moves forward.What Mortgage Terms to ExpectIt would be foolish to expect excellent terms when applying for a home loan with bad credit, but there are ways to secure more competitive interest rates and repayment schedules. For a start, with sufficient time taken to plan for the application, it is possible to improve credit scores in advance.This can be done by taking out a consolidation loan and using it to clear existing debt balances. The loan can be modest, perhaps just enough to cover the most troublesome debts – like credit card and existing personal loans. But it would be enough to greatly improve your chances of approval despite poor credit ratings.Another advantage is that, with the proper terms, the consolidation loan will greatly lower the monthly repayments, freeing up more cash to commit to home loan repayments. And with the debt-to-income ratio improved, little remains to convince the mortgage provider to reject the application.Why Accommodate Bad Credit Borrowers?It would seem that mortgage providers who are willing to approve a home loan with bad credit are accepting 100% of the risk. This is pretty much true, though bear in mind that the property purchased is always used as security, so defaulting means the lender gets the house.But, there are other reasons that make lending to bad credit borrowers viable. In fact, statistically, a bad credit borrower is less likely to fail to make repayments because they are determined to regain their financial strength. This effectively means getting a good credit rating again.  As far as a lender is concerned, granting approval despite poor credit ratings is not as risky as it seems. Also, if the right signs are given in advance (improving credit scores, saving a large down payment), it is logical that the borrower will be committed to their home loan repayments too.