Mortgage Loans With Bad Credit: Three Key Factors to Aid Approval

There is no doubt that, for the vast majority of us, a mortgage represents the largest single debt we will ever take on. Little wonder then that mortgage lenders are hesitant to approve applicants seeking a mortgage loan with bad credit. But while the amount of money at stake is too much for comfort sometimes, there is still every chance of a successful application.The thing to remember about low credit scores is that they are never the actual reason for an application being rejected. There are other, more influential factors at play when securing loan approval. And besides, if the criteria set by the lender are satisfied, then there is room for optimism.What are these other factors? Well, none of them will come as a great surprise, with employment security and income, the size of the down payment, and recent credit history all playing a part in the fate of a mortgage loan application.The Role of Credit HistoryWhile credit score that an applicant has no great influence over success or failure of a mortgage loan with bad credit, lenders do take an interest in recent activities that may have affected the score. To be specific, they like to see the applicant has made an effort to improve their financial status.It is true that a low credit score is generally detrimental to an application, but only in a minor way. Of course, when it comes to securing loan approval, the key issue is whether the particular loan deal is affordable. If the repayments are too high, then the application will be rejected. Credit scores dictate the interest rate to be charged, which directly affects the sum to be repaid each month.Improving the credit score can, therefore, improve the chances of approval on the mortgage loan. A consolidation loan can be used to clear all of the existing debts in one go, and reduce the overall monthly outgoings. With higher credit scores, interest rates are lowered and the repayments are more affordable.Income and EmploymentThis is perhaps the obvious condition when submitting any loan application, not just a mortgage loan, with bad credit. But it is a mistake to think having a large income makes approval more likely. In fact, it is job security that is of most interest to lenders.It is only logical that a long-term ability to earn is seen as more important than the current pay packet. After all, a mortgage is a long-term commitment, so being able to make the repayments over 30 years is essential. But when securing loan approval, there is a need to prove that current income levels are enough to handle repayments.This is where the debt-to-income ratio comes into play, a ratio that dictates a maximum 40% share of income can be used to repay loans and debts. If the repayments on a mortgage loan push the share over the 40% mark, then the application is set to be rejected.The Size Of The Down PaymentThe most underestimated factor is the down payment, but the size of the down payment can have a major say on the fate of an application for a mortgage loan with bad credit.Usually, just 5% of the purchase price is paid, but if the payment is larger then the chances of approval improve. This is simply because the bigger the down payment the smaller the mortgage required. And the secret to securing loan approval is in keeping the principal borrowed to a minimum.Also, the financial discipline required to save a significant lump sum is immense, so lenders can only be made to feel confident that the approved mortgage loan is being granted to a mature and dependable borrower.