For many people with bad credit, mortgage loans seem like a very slim possibility. They believe that the key to getting a mortgage is their credit score which means there is no way for them to succeed. However, the determination of mortgage loans is actually based on far more than just one, three-digit number. In fact, people with good credit can get denied.
Rather than focus on credit alone, the determination by a lender to grant a mortgage loan is far more complex. If you have bad credit and want a mortgage loan, there are real steps that you can take in order to increase your chances of getting the loan you need. Remember this: a lender only wants one thing from you when he gives you a mortgage loan with bad credit or good credit, on-time repayment. The key is proving to the lender that this is a possibility.
The Importance of a Good Ratio
Good credit does not guarantee that a person can get a mortgage loan the same way that bad credit does not doom them to rejection. That is because mortgage loans are based on several criteria that look at a borrower’s past, present, and future in finance. Principle among these considerations is the current ratio of that borrower’s income and debts. When it comes to this ratio, the golden number is 40. No more than 40% of your current income can be assigned to the repayment of existing debt. In other words, if you make $10,000 a month, only $4,000 should be going to pay off existing debt. Otherwise, the addition of a mortgage loan would stretch your available income too far.
Show Them You Have Changed
Along the lines of debt, lenders will consider you for a mortgage loan with bad credit if the reasons for your bad credit are behind you. It is well known that it is easy to ruin your credit, but harder to build it back up. Facing a crisis years ago, perhaps a sudden job loss or a medical disaster, may have sent your credit plummeting. However, if you have spent all the time since then getting back on your feet and resuming responsible financial management practices, lenders will respond to that change.
Emergencies happen. What you need to show is that, outside of the unavoidable, you can do what it takes to manage your money and repay your debts.
The Smaller the Loan, the Easier the Approval
It’s easier to get small loans than large ones. Therefore, you should take the value of your mortgage loan into consideration. With bad credit, the less money you ask for the more likely you are to get approved. There are two ways that you can work to lower the amount of money you need. First, save up a large sum for a down payment. The more cash at hand, the less credit is needed. Next, consider changing the amount of money you plan to spend on the home you want. Look for deals, consider smaller properties, or look into different areas where home prices are more reasonable.
Don’t Give Up Hope
The final step that you can take towards homeownership and getting a mortgage loan with bad credit is making sure to keep your goal in mind and your outlook positive. If you still cannot get a loan after following this advice you are not lost forever. Continue to work on responsibly repaying the bills you currently have, eliminating debt, and improving your credit score. Over time, that bad credit will become less so and the mortgage loan you need will be easy to achieve.
By Andrew Watson