Securing Home Loans With Bad Credit: How To Enhance Your Chances

May 13
10:50

2013

Devora Witts

Devora Witts

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Bad credit borrowers can welcome the fact that it is possible to secure home loans with bad credit. But it is necessary to get the application right before approval becomes a realistic possibility.

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There is no secret to the fact that most lenders are cautious about lending to bad credit borrowers,Securing Home Loans With Bad Credit: How To Enhance Your Chances Articles especially when the sum being sought is large. And since a mortgage is the largest single personal debt anyone will take on in their lifetime, getting a home loan with bad credit should surely be impossible.But the fact is that even bad credit borrowers can get funds to buy a home. All that is really needed is to meet the strict criteria set by mortgage providers. Once all of the necessary boxes are ticked, then securing mortgage approval, even with very poor credit ratings, becomes a realistic possibility.Applying for a home loan is still a big deal, though, and it would be mistake to think that there is any fast-track process available. But, with the right preparation, and by addressing the key aspects of the mortgage application, the quest for a mortgage is enhanced.Address The Issue of Your Credit ScoreCredit scores can have a negative impact on an application but taking the time to improve those scores can actually strengthen the application. So, before applying for a home loan with bad credit, it is worth spending a month or two doing what is necessary to improve the score.There is really only one way to do this – clearing some (if not all) of the existing debt. Taking out a consolidation loan means paying off the balances of each individual debt, and with each loan paid off the credit score increases. The result is to make securing mortgage approval easier.And because all of the existing debts are gone, the debt-to-income ratio is improved too. This is perhaps an even more beneficial development, since the ratio is a key part to a home loan approval process.Lengthen the Term of the MortgageThe most effective way of ensuring affordability is to lower the size of the monthly repayments. After all, that is the main problem usually – not being able to meet that obligation comfortably. Keeping the repayment low is a good way to secure a home loan with bad credit.By lengthening the term of the mortgage, the mortgage principal is divided into a greater number of shares – for example, a 30-year mortgage involves 360 monthly repayments; a 40-year mortgage means 480 repayments. The difference can mean savings of as much as $300 per month, depending on the size of the mortgage.Lower monthly payments make securing mortgage approval more likely, with less trouble anticipated in making the repayments. However, be aware that it also means more interest is paid over the lifetime of the home loan.Provide a Large Down PaymentOf course, another way to lower the size of the monthly repayments is to lower the actually size of the mortgage. But to do this requires making a larger down payment. As one might expect, a lender is more likely to approve a smaller home loan with bad credit than a larger one.The math works like this. If a house costs $250,000 and a 10% down payment is made, then a mortgage of $225,000 is needed. But if a 20% down payment is made, then a $200,000 mortgage is needed. The difference in monthly repayments can be a few hundred dollars, so securing mortgage approval becomes more likely.Combined with a longer term and an improved credit score, there is little doubt that the home loan is as affordable as it can get. And as an applicant, the chances of getting the green light are very strong.