How Home Loans With Bad Credit Are A Feasible Financing Option

Not too long ago, there was such enthusiasm in the property market that few believed a recession would ever hit. But it did, and now many honest borrowers have fallen on difficult financial times. Those planning to buy a home must seek home loans with bad credit, which raises doubts over their chances of success.

Complications have certainly been created as a result of the weakening economic conditions, but these factors have not killed off the property market completely. Securing mortgage approval is not an impossible dream if the concerns of the lender are addressed adequately Curtin. Of course, the question is how to do this.

The fact is that, even with a very poor credit history or low credit score, a home loan is still feasible. All that is really necessary to ensure financing for your new home is to put together an application that is strong enough to convince lenders that their investment is safe.

Strengthening Your Application

The first step to strengthening your application is to check out your financial position through your credit report. This document, which can be purchased from any of the 3 credit bureaus, details how a credit score was reached. When seeking a home loan with bad credit, this is very valuable information.

Most lenders are open to approving bad credit applicants with scores of 620 or more, but are unwilling to entertain applications from those with scores of anything lower. It is possible to have the report reviewed. It is not unusual for the score to be inaccurate because a loan that was cleared recently was overlooked. Through a review, the score can be improved, making securing mortgage approval a little easier.

Another way strengthen your application is to take out a consolidation loan to clear all existing debts in one go. This also improves the credit score, while reducing the monthly expenditure. Thus the debt-to-income ratio is improved too, making the home loan much more attainable.

Consider A FHA Loan

There are other financing options available to bad credit borrowers, with the FHA providing a practical solution to those who already face severe difficulties in convincing mortgage providers directly to grant a home loan with bad credit. Still, there are strict criteria to satisfy too.

The FHA mortgage is actually granted by a mortgage provider, but with the FHA sponsoring the deal. Effectively, they guarantee 25% of the loan, which is enough to lower in risk considerably while also removing the need for the borrower to make a down payment. As a result, the chances of securing mortgage approval are greatly improved.

However the FHA program is reserved for bad credit borrowers with scores of 560 and above, while applicants cannot have any loan defaults for 12 months, have 3 forms of credit and have no outstanding CCJs or bankruptcies. Only then can an applicant qualify for an FHA-sponsored home loan.

Making Your Home Loan More Affordable

Getting a home loan with bad credit is heavily dependent on proving that the loan is affordable, and that the repayments each month will not be missed. With the typical mortgage stretches over 30 years, that is a long time to cover.

But there are ways to make securing mortgage approval more likely, with affordability helped greatly by either making a larger down payment, or agreeing a longer loan term. A down payment lowers the size of the required mortgage, and the lower the required home loan the more likely approval will be.