With the series of banking crises that have struck since 2008, securing large loans with low credit scores has become a difficult undertaking. When the loan required is to buy a home, the sum involved is extremely high, so getting a home loan with bad credit can hardly be considered easy.
However, the good news is that there are ways to secure exactly that kind of loan, and to purchase your own home, even with the specter of bad credit hanging over your head.
How can this be? Because there are always ways around hurdles, so getting mortgage approval despite poor credit scores is always a possibility.
It would be foolish to imagine that getting a home loan has ever been a simple thing. There are strict terms, and legal aspects that must be sorted out. What can be promised, however, is that with the right approach, approval is a lot easier to secure than some would think.
Negotiating The Bad Credit Issue
We are generally led to believe that having poor credit ratings is the surest way to kill off a loan application, and therefore the chances of getting a mortgage are practically nil. But this is actually a very misleading idea, and securing a home loan with bad credit is possible for a very simple reason.
Credit scores are not a significant factor in loan approval processes. Scores are seen by lenders as an evaluation of the past credit habits, but do not reflect the current financial position of an applicant. Getting mortgage approval despite poor credit scores is possible because even if in the past repayments were not affordable, they may be affordable now.
Basically, scores have an impact on the interest rate that is charged. When it comes to securing a home loan, this can be a vital element, with a high rate pushing the repayments up. But despite this influence, the real issues relate to the excess income available.
Improving Your Approval Chances
So, what are the steps to take to improve your chances of getting a home loan with bad credit? They are rooted in the areas of income and existing debt, both of which directly affect the affordability of the mortgage repayments.
For example, by lowering the amount of money already spent on meeting debts, it is possible to dedicate more to repaying the mortgage. This can be done in only one way – clearing some or all of the existing debts. Taking out a consolidation loan can clear these debts in one go, while the repayment terms of the new loan can see the monthly sum committed fall by as much as 50%.
With more cash to hand, getting mortgage approval despite poor credit scores is easier. Another way to improve approval chances are to pledge a larger down payment, which effectively lowers the size of the required home loan. With lower mortgage debt, repayments become lower too.
Consider An FHA Mortgage
While approaching mortgage providers is generally seen as the only option when seeking a home loan with bad credit, there is another option to consider – an FHA supported mortgage.
The FHA is not a lender, and so no mortgage is available from them. But they do offer a support program where 25% of the mortgage from an accredited mortgage provider is secured. This lowers the risk for the lender, thus lowering interest rates and removing the need for a down payment. So, getting mortgage approval despite poor credit scores becomes very straightforward.
However, it is necessary to qualify for an FHA mortgage, with applicants with scores of 560 and above eligible to apply. It means for those with terrible scores, the chances of a home loan are very slim indeed. Other conditions include having 3 forms of credit agreement and no defaults on record for 12 months.
By Destiny Page