When it comes to applying for a home loan mortgage with bad credit, many home hunters are put off by the apparent lack of opportunity. High interest rates and lower loan limits are only part of the problem, but it is important to realize that there are mortgage options available to bad credit borrowers.
While traditional mortgage providers, like those at established banks and institutions, typically apply strict lending policies, there are ways to improve your chances of securing mortgage approval with poor credit. These range from checking out your own financial status, to approaching alternative loan sources.
Getting a home loan mortgage may require some serious compromises, but the ultimate aim is to secure the required funds to buy your home. We have put together a list of 5 points that can help to simplify the task.
1. Check Your Credit Status
Once your status is known, it is easier to calculate what kind of mortgage is attainable, and where your weaknesses lie. By securing a copy of your credit report from one of the credit agencies, your application for a home loan mortgage with bad credit can be strengthened in advance.
2. Improve Your Status
There is no point in leaving things as they are. Most of the time, the principal problem relates to a low credit score, with existing debts causing further havoc. In order to get mortgage approval with poor credit scores, it is necessary to improve your status. So, this could mean taking out a consolidation loan and clearing all existing debts.
This is a strategy that works because it improves the credit score by paying off the debts, and lowers the debt-to-income ratio by reducing the monthly outgoings, both of which are key factors in securing home loan mortgages.
3. Make a Larger Down Payment
A down payment is usually required to seal the deal on a property purchase. Usually, this percentage is 10%, so on a property worth $200,000, a payment of $20,000 is needed. But to get a home loan mortgage with bad credit, a larger down payment is probably necessary.
The reason centers around the size of the required mortgage. If a 20% down payment is made ($40,000) then a mortgage of $160,000 is needed. This translates to much smaller repayments each month. And mortgage approval with poor credit is easier when the repayments are smaller, and more affordable.
4. Seek a Longer Term
A fourth option is to look for a longer term on the home loan mortgage. Usually, a mortgage is 30 years, but if the term is extended to 40 years, it results in a lower monthly repayment sum.
Of course, a downside is that the interest paid would be significantly more over the lifetime of the mortgage, but that may be acceptable if getting the home loan mortgage with bad credit is a very real possibility.
5. Consider Alternative Lenders
Finally, it is worth approaching alternative loan sources as many less traditional lenders are more open to granting mortgage approval with poor credit. Sub-prime lenders are a good example, providing more flexible deals designed to benefit the bad credit borrower. However, they are known to charge higher interest rates.