Saturday, August 11, 2012

Home Loan Mortgages With Bad Credit: Lowering Costs For An Affordable Deal

It is assumed by almost everyone that getting a home loan mortgage with bad credit is very difficult. In fact, with a poor financial status, the chances of getting the green light are extremely low. It is not just the nerves of the lender, but the fact the interest rate is typically too high and the repayments may be too great.

But it is possible to get mortgage approval despite low credit scores. For a start, the scores matter very little in any loan application, affecting the interest rates charged rather than the actual approval decision. Even income has less say over the process than many believe.

As with any loan deal, affording the repayments is the key consideration, and so convincing the mortgage provider that the home loan can be repaid in comfort is the purpose of the application. There are 3 excellent ways in which to help things along.

1. Employment and Income

Other than the basic criteria associated with any loan, getting a home loan mortgage with bad credit is dependent on a few extra details. One of them is the employment status of the applicant, and the other is the income that is being earned.

Being in full-time employment is essential, especially when trying to secure mortgage approval despite low credit scores. However, there is also a need to have held the job for at least 6 months before the application is submitted. Some lenders stipulate longer terms.

This means a short or mid-term contract (1-5 years) is not enough to convince a lender to grant a home loan. Even if the contracted job is extremely well paid, there is no guarantee since large incomes are not enough unless the debt-to-income ratio is well below 40%.

2. Offer a Larger Down Payment

The significance of the down payment is such that a larger sum paid can swing an application for a home loan mortgage with bad credit. Basically, because it chips a large chunk off the required mortgage sum, the larger it is the more affordable the mortgage will be.

The mortgage lender is only worried about getting their money back, and often the difference between an affordable monthly repayment and an expensive one is 0 or 0. Normally, the down payment is 10% of the purchase price, but if it were 20%, then getting mortgage approval despite low credit scores becomes likely.

Of course, getting the larger down payment together is the trick. A 0,000 home will require a ,000 payment at least, with the large sum being ,000 - a sizable sum in any case. Still, the extra effort can be justified by the home loan deal.

3. Move to Lower Your Interest

The main problem with applying for a home loan mortgage with bad credit is not the sum to be borrowed, but the size of the repayments. Lowering them as much as possible is a key factor in winning over the mortgage provider.

While a larger down payment helps greatly in doing this, the interest rate charged can have a significant influence too. Lowering the rate does help make things more affordable, and improving your credit score helps to accomplish this. Clearing some (if not all) existing debts is the best way, which means a consolidation loan may be needed in advance to pay off those debts. Once this is done, the credit score rises and debt-to-income ratio improves, entitling the applicant to a lower interest rate.

Remember, securing mortgage approval despite low credit scores comes down to convincing the lender the home loan will be repaid. Once that is achieved, there is little reason to deny approval.

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