Mortgage Loans With Bad Credit: Pointers to Help Towards Approval

It is understandable if people genuinely believe that seeking a mortgage loan with bad credit is something of a waste of time. Lenders are usually unwilling to grant such large loans to bad credit borrowers, since the chances of their losing money on the transaction is quite high. But the approval rate is actually much higher than most would expect.But there are more influential factors than credit scores involved in the application process, effectively making the task of securing loan approval very possible so long as the right boxes are ticked. Factors like the income-to-debt ratio are important, as are the inclusion of a significant down payment and visible signs that the bad credit borrower has a mature and committed attitude.There are definite ways to improve the chances of getting a mortgage loan application approved. All that is necessary is to satisfy the lender in these three areas, convincing them that the mortgage will be repaid.The Significance of the Debt-to-Income RatioThe debt-to-income ratio is something that very few applicants are aware of, but is actually the critical element in the approval process. When applying for a mortgage loan with bad credit, the most interesting fact is not the credit score, nor the amount of money the applicant is earning, but in how much debt the applicant is already handling.The ratio is a measure of debt compared to the income that is being earned, and is designed to prevent the borrower from overextending their debt. The rate is set at 40:60, so a maximum of 40% of an income is allowed to be committed to total repayments. Securing loan approval depends on these repayments not pushing the income share over 40%.What this means is that, even with a monthly income of $10,000, a mortgage loan application can be rejected. With a limit of $4,000 set, and existing debts of $3,000, mortgage repayments cannot be more than $1,000. An income is $5,000 with monthly debts of $700, mean a higher maximum of $1,300.Saving a Down PaymentA down payment is an important part of buying a new home, with most lenders expecting a minimum of 10% of the purchase price covered. But when applying for a mortgage loan with bad credit, providing a bigger down payment - of maybe 15% or 20% - can have a hugely positive impact.There are a couple of reasons for this. First of all, there is a high level of financial discipline required to save such a significant amount of money. A 10% sum for a $200,000 home is $20,000, which can take years to gather - so a 20% down payment of $40,000 is very hard to get. Securing loan approval is helped greatly by a show of such commitment.Of course, the size of the required mortgage loan is reduced when the down payment is higher. A 20% down payment on property worth $200,000 means a mortgage of $160,000, translating to a saving of perhaps $100 per month in repayments.A Mature Financial AttitudeThe ability to save a down payment is one indication of a mature and dedicated financial attitude. But when applying for a mortgage loan with bad credit, making the effort to improve on credit scores can be very helpful.This can be done by taking control of existing debt. A popular method is to buy out existing loans with one consolidation loan, effectively clearing debts with one affordable loan sum.Securing loan approval can be quick but getting everything in order requires preparation over a period of years. However, if it means getting the mortgage loan necessary to buy the home desired, then the effort is well worth it.