With the size a typical mortgage is, having a poor credit record is hardly going to strengthen an application. But that is not to say that getting a mortgage loan with bad credit is impossible. There are ways to ease the concerns that mortgage lenders may have, and convince them to give a green light to the whole project.
The simple fact is that issues, other than the particular credit score an applicant has, play key parts in the process. A credit score only reflects the credit history, but not the current financial means. Getting mortgage approval with poor credit scores comes down to proving that the repayments are affordable, and that the ability to meet the repayment schedule is long term.
Of course, nothing is guaranteed, even when these elements are in good order, but it is worth noting that, even for bad credit borrower, there is an opportunity to secure the mortgage loan necessary to buy the home they want.
Issues That Require Attention
Sill, before even the best possible mortgage agreement is signed, it is essential that some specific issues with the agreement are carefully considered. The terms offered can differ depending on where the application for a mortgage loan with bad credit is submitted.
Normally, traditional lenders like banks offer the worst terms, mainly due to the strict lending policies they have for bad credit borrowers. There are advantages, however, with most banks knowing their applicants and in a better position to assess the mortgage loan application.
Alternative sources include private providers and online lenders, both of which are more open to granting mortgage approval with poor credit scores. And while checking the reputation of any unfamiliar lender on the Better Business Bureau website is a must, it is equally important to consider the following issues.
- Fees And Penalties
Reference to both of these factors is to be found in the small print of any mortgage agreement, so it is important to read the proposed contract in detail. Getting a mortgage loan with bad credit comes down to such details, with some lenders charging higher fees and setting higher missed payment penalties for bad credit borrowers. These elements need to be included in budget calculations.
- The Repayments
The second issue is arguably the most significant in the eyes of the lender, especially. Making sure that the monthly repayments are affordable is essential to getting mortgage approval with poor credit scores. There is no point in stretching your current finances. Lenders want to know that the repayments can be met comfortably – now and in the future.
So, while they may set a limit of 40% of excess income to use for mortgage loan repayments, it is a good idea to set your own lower rate (say 33%), so as to allow for any fluctuations in the future.
- Pre-Payment Penalties
When a borrower enjoys an unexpected and sizeable windfall, it is not unusual that they use that money to repay the mortgage early. This is especially the case when a borrower secured the mortgage loan with bad credit.
In some cases, there is an extra early repayment fee to pay – even when refinancing the mortgage. But not all mortgage providers charge one, so it is important to check if the lender charges them and how large it is.
- Interest Versus Charges
Of course, there is always room for negotiation, and the mortgage lender may be willing to lower interest rates in return for paying higher fees and penalties.
When seeking approval with poor credit scores, this can be valuable, effectively saving thousands over the lifetime of the mortgage loan. However, be sure to stay on top of repayments, otherwise the advantage is lost.
By Eric Smith