Sunday, September 30, 2012

Home Loans With Bad Credit: How To Improve Your Approval Chances

Traditionally, home hunters face an uphill task when they want to find finance to buy a new home. But the truth is that getting a home loan with bad credit is easier that many would think. What must be accepted is that compromises need to be accepted, like higher interest rates.

Lenders are usually thought of as conservative in their lending policies. This is certainly true with traditional lenders, like banks, but the rise of alternative lenders has seen the chances of securing mortgage approval increase dramatically. And with terms that are more flexible, and interest rates that are more competitive (though still not very low), these finance packages are more affordable too.

Getting approval is possible, even when an applicant has a very low credit rating. And, for any applicant, the chances of getting that home loan are improved when certain areas of the application are prepared properly.

Key Areas to Consider

There are three areas that every applicant should pay careful attention to before they submit their application for a home loan with bad credit. These relate to calculating an accurate budget (and sticking to it), the down payment, and finding the right lender with the right loan terms.

Calculating the budget is the first step, and involves making a careful assessment of existing debts and outgoings, and comparing them with income. Most lenders will stress the need to have enough excess income to cover mortgage payments for the lifetime of the loan. In fact, when it comes to securing mortgage approval, this is the core issue.

Budgeting means that the limit to what home loan is attainable is recognized so that a strategy can be devising to eventually increase that limit. For example, if the amount of existing debt is high, then lowering it by clearing some individual debts, or using a consolidation loan, then more income can be made available to cover mortgage repayments.

Increase the Down Payment

The down payment is often overlooked as an element in the overall mortgage deal, but increasing the size of the payment can have a positive impact. This is especially true when seeking a home loan with bad credit, where the monthly repayments need to be kept as affordable as possible.

Basically, the size of the required mortgage is lowered if the down payment is bigger. For example, a down payment of 5% on a home worth 0,000, means a mortgage of 0,000 is needed to complete the purchase. But a 10% payment means 0,000 is required, which could translate to a fall of perhaps 0 in repayments each month. Securing mortgage approval, therefore, become much easier.

Of course, another aspect is that providing a larger down payment tells lenders of the commitment an applicant has to getting a home loan. Saving a large sum of money relatively quickly requires real financial discipline, which is a positive attribute.

Find the Right Lender

Your choice of lender is just as important a part of any deal as anything else. They set the policy that affects the interest rate structure, as well as the range of penalties and fees that can be charged. So, getting the right one can make the task of finding an affordable home loan with bad credit easier to accomplish.

Online lenders are generally the best in the market, often charging more competitive rates and offering terms that are more suited to bad credit borrowers. For those with poor credit histories, the chances of securing mortgage approval are increased, as long as the criteria and conditions are met.

Still, be sure to examine any home loan offer carefully for hidden charges before signing up to anything. Also, check the reputation of the online lender with the Better Business Bureau website.

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