Mortgage Loans With Bad Credit: 3 Important Factors to Consider

Oct 24
10:44

2012

Sarah Dinkins

Sarah Dinkins

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Applying for a mortgage loan with bad credit is expected to be an exercise in futility, but it is no waste of time. Having 3 key factors in order makes the chances of approval better.

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There is no certainty when seeking a mortgage loan with bad credit ratings part of the application. The problem relates to the size of the loan being granted,Mortgage Loans With Bad Credit: 3 Important Factors to Consider Articles and just how trustworthy the borrower is to make repayments on time. But the truth is that there is little reason to expect rejection on these grounds alone.It is only to be expected that securing mortgage approval will be more difficult with a low credit score, than an excellent one. However, that does not mean that the application is guaranteed to be turned down. In fact, with three key aspects are properly prepared for, the approval process is more likely to finish with a positive outcome.The aspects relate to such common mortgage loan elements as employment, the provision of a sizable down payment and signs that the credit score has been improved, or is expected to be.Employment StatusIt is a mistake to think that the size of an income is the key factor. The reliability of the employment is important too, with mortgage lenders willing to grant a mortgage loan with bad credit if the borrower is proven able to make repayments for the 25 or 30 years of the mortgage term.But even someone with a large income and a safe employment status may not be enough to ensure securing mortgage approval. Applicants who have only recently begun a job usually have to wait for a while before being considered, while their debt-to-income ratio is also a crucial factor that is taken into account.The ratio relates to the amount of income an applicant has free to make repayments with, with a 40% share of income the recommended limit. For example, with a monthly income of $5,000, if the mortgage loan repayments raises total debt repayments to more than $2,000, then the application will be rejected.Addressing Credit Score StatusOf course, with employment status, income size and debt-to-income ratio to worry about, a credit score can only play a limited influence over an application for a mortgage loan with bad credit. But if there are signs of improvement in these scores, the application can be helped quite a bit. This is because the lender wants to know that the applicant is serious about their commitments and working to improve their scores is a sure sign of that.So, with the chances of securing mortgage approval vastly improved, the time and effort required to raise a credit score is well worth it. There are two main ways to accomplish this. Firstly, a consolidation loan can buy out the existing individual debts, replacing numerous loans at varying interest rates with one loan at one interest rate to lower the overall costs.However, it is not only the physical improvement on the credit score that impresses lenders. The effort taken means that the applicant is prepared to commit to the mortgage loan, and that the bad habits that led to the low score are behind them.Advantages of a Large Down PaymentThere is no underestimating the advantages of providing a large down payment. Usually, about 5% of the purchase price is expected as a cash lump sum, effectively securing the property. But when it comes to applying for a mortgage loans with bad credit, it is the remaining sum required that is the key figure.The larger the down payment is, the smaller the sum required. This means the repayments are lower, so the while loan package becomes more affordable and securing mortgage approval very likely. For example, if a 10% down payment is paid, then a property worth $250,000 needs a mortgage of $225,000.Also, the financial discipline required to get $25,000 together is quite extreme. This kind of discipline is exactly when lenders want to see before approving a mortgage loan.