With the present state of the economy, getting affordable financing to buy a home with is not easy. There are many mortgage providers looking to recover losses made in the property market over the past 5 years, and borrowers pay through the nose as a result. But while approval is never guaranteed, applicants can get mortgage loans with bad credit.
It is good news for all bad credit borrowers, especially those whose poor credit status is relatively recent and as a direct result of the economic downturn. But despite the opportunity, there are points that must be considered. Only then, can securing home loan approval be more likely and more beneficial.
And it is still not possible to get these competitive mortgage loans from just anywhere. It is generally only specialist lenders – more than likely online lenders – that offer these terms to bad credit borrowers.
Where To Find These Mortgages
Traditional lenders, like banks, have very strict lending policies that are designed to minimize risk and maximize profits. It means that those seeking mortgage loans with bad credit are unlikely to secure deals that are affordable, facing higher interest rates and stricter repayment schedules.
So, it is necessary to look elsewhere, and subprime lenders are one of the better options available. Usually, these mortgage lenders operate online, and as a result can offer lower interest and more flexible repayment terms. And because these lenders are experts in bad credit lending, applicants can be more confident about securing home loan approval.
Even those who already have a home and a mortgage to repay can find it is a good idea to get a new mortgage loan from subprime lenders – essentially refinancing their existing mortgage. By buying out the existing balance, and repaying it over a longer term, the monthly repayments are kept quite low.
How Lenders Benefit
The great mystery, of course, is how the lender can benefit from accommodating applicants seeking mortgage loans with bad credit. If a low credit score is supposed to indicate a greater degree of risk, then why should they accept the situation?
In fact, to a lender any kind of mortgage is simply another product, and granting them is the only way that lenders can make their profits. The only thing that really matters to them is that the repayments are affordable, and that is why credit scores have very little to do with the approval process.
Securing home loan approval is not difficult if the applicant has little existing debt and a comfortable income. And remember that no mortgage loan is granted without security, as the home itself is claimed in the event of defaulting on repayments. Therefore, the lender is always protected.
Better A Better Deal
There are ways to secure better mortgage deals, even when seeking mortgage loans with bad credit. The basic idea is to keep the size of the mortgage down, and paying a large down payment can accomplish this.
Normally, down payments are around 10% of the purchase price of a home, but by paying 15% or 20%, significant savings can be made in the long run. For example, with a $200,000 home, securing home loan approval is easier on a principal of $160,000 than on a principal of $180,000.
Over the lifetime of the mortgage loan (30 years), it can mean as much as $100 per month less in repayments, which translates to $36,000 in total. What is more, with greater affordability, the perceived risk is less, thus lowering the interest rate charged.
By Alyssa Benson