Normally, anyone seeking to buy a new home needs to spend a significant amount of time saving a lump sum for a down payment. It is understood to be an essential part of any property purchase. But in fact, a down payment is not essential, and securing a mortgage loan with bad credit is possible without it.
This may seem too good to be true, but it is true and there are specialist mortgage providers willing to grant 100% financing. What is also true is that getting approval with no down payment is neither guaranteed nor easy. There are strict criteria to qualifying, and serious commitment required.
Thankfully, meeting these criteria is far from impossible, as is the chance of securing a mortgage loan that is affordable, practical and manageable.
The Significance of Down Payments
The reason that a down payment is considered so important is down to the effect it has on the mortgage. Since the payment represents a percentage of the purchase price, it lowers the size of the required loan. For anyone seeking a mortgage loan with bad credit, this can effectively make their mortgage affordable.
Normally, the down payment is about 10% of the purchase price, so for a $200,000 home, the required mortgage would fall to $180,000. Of course, this means that granting approval with no down payment ensures the required mortgage is the full $200,000.
The advantage, however, is that no lump sum needs to be saved in advance of applying for the mortgage loan. This wipes years off planning, and allows home hunters to buy earlier.
Consider FHA Financing
For those bad credit borrowers in need of financial help to buy their homes, the range of FHA sponsored mortgages are well worth considering. In fact, when it comes to securing a mortgage loan with bad credit, it is difficult to find a better option.
The FHA was set up specifically to aid people with low incomes and poor financial standing to buy their own homes. They do not actually finance the mortgages themselves, but by guaranteeing 25% of the sum borrowed from a regular lender, the likelihood of securing approval with no down payment increases dramatically.
Still, there are limitations to this option. For example, only property within a certain price range is covered by the FHA, so it is not possible to get their support on any mortgage loan or for any home. The FHA concentrates on making affordable housing available to those in need of a financial break.
Do Your Research
Finally, there is no substitute for doing research and spending time looking for the best possible deals. Taking to the Internet is, therefore, a vital resource when seeking a mortgage loan with bad credit. And with the variety of comparison sites to be found, the task of comparing various deals to find the best one is made easier too.
However, there is always a risk in applying for loan and mortgages online. For a start, the lender is often unfamiliar, so the risk of being caught out by unscrupulous lenders is much higher. And the promise of securing approval with no down payment can be a carrot many victims find hard to resist.
Checking the reputation of all prospective mortgage loan providers is essential, and no contract should be agreed to without first studying the small print in detail and establishing the track record of the company in question.
By Robert Charlson