Mortgage Loans With Bad Credit: How They Lower Your Interest Rates
Getting mortgage loans with bad credit might seem hard to believe, but it is very true. The influence bad credit has over applications is minimal, with other factors affecting interest rate and affordability more.
This is partly why applications can be approved so quickly, but there are always factors that need to be taken into account. The truth is that applications for mortgage loans are not all the same. But what factors should be taken into account?
The Basic Criteria
There are no prizes for guessing the basic criteria that every applicant should meet when seeking mortgage loans with bad credit. There is a requirement by law that the applicant be over 18 years old, be a US citizens or a long-term resident of the US - so both of these conditions go without saying.
However, there can be some confusion over the basic financial requirements. While proof of income is important, it is not enough to swing things. In fact, securing loan approval really depends on a long-term ability to make the monthly repayments, so the amount of disposable income is much more significant.
This means that, even if an applicant earned $10,000 per month, there is no guarantee that they can secure a mortgage loan of even $250,000. With a debt-to-income ratio of 40:60 to be applied, if their existing debts are already very high, there may not be enough money to spare to comfortably meet the obligation. On the other hand, someone earning $5,000 per month, may be able to afford it.
The Down Payment
It is worth noting the influence a down payment has over a mortgage lender. Most people fail to see the connection between a mortgage and a down payment, but the fact is that the larger the down payment, the better the chance for getting the green light for a mortgage loan with bad credit.
This is because the down payment lessens the size of the required mortgage. For example, a property with a purchase price of $250,000 will need a loan of $225,000 if a down payment of $25,000 is made. This helps when securing loan approval is uncertain, because with the lower principal there is less interest to pay. Therefore, the monthly repayments are lower in general.
Also, the financial discipline required to save a cash lump sum of $25,000 is extreme, especially when coping with low credit scores and poor financial status. Impressing lenders in this way, convinces them that they can trust the applicant to be responsible with a mortgage loan.
There can be a number of other factors that lenders take a look at, but in general these are small. For example, when seeking a mortgage loan with bad credit caused primarily by a bankruptcy ruling, the ruling itself is not considered if it occurred two years or more before the date of the application.
Meanwhile, while credit scores have no bearing on approval or rejection, they can sometimes decide on the percentage financing the applicant is qualified for. For example, securing loan approval on 80% the value of the property might be the best someone with a score of 500 might expect. But a 100% mortgage loan could be enjoyed by someone with a 650 score.
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ABOUT THE AUTHOR
Donna Hammond is the author of this article. For more information about Bad Credit Unsecured Loans and Mortgage Loans for Bad Credit please visit her website at http://www.quickbadcreditloans.com/