Securing Home Loans With Bad Credit: Three Main Areas that Need Your Attention

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Bad credit scores were once seen as a killer blow to those hoping to buy a new home. But the reality is that low credit scores are only treated as an indication of risk by lenders. So, it is possible to successfully apply for a home loan with bad credit, though there are conditions too.

While credit scores are not the be-all and end-all when applying for a home loan, lenders are not going to simply ignore the information either. After all, mortgages involved hundreds of thousands of dollars, so risks are high. For that reason, getting approval on home loans require some effort and preparation on the part of the applicant.

What this translates to is being able to meet the required criteria, standards set by lenders to sift through the applicants. Only those that qualify through the set criteria can ever hope of securing approved home loans despite bad credit. The trick then is to ensure that your application meets the expectations of the lender. There are three main areas to consider.

Offering a Down Payment

The significance the down payment plays in applying for a home loan with bad credit cannot be underestimated. There are a couple of reasons for this, with the principal being that the amount needed to borrow is reduced. This is good news, not just for the lender but for the borrower too. After all, they are less in debt and their monthly repayments are lower.

The typical amount required for a down payment is between 5% and 10% of the purchase price. This can often translate to around $30,000, depending on what the purchase price actually is. However, the chances of getting approval on home loans can be greatly enhanced because of the ability to save that kind of money too.

Basically, the financial discipline required to get a lump sum of that size together suggests a mature and responsible attitude - and borrowers with these attributes are much more likely to secure an approved home loan, despite bad credit.

Keep It Real

There is no point is looking to secure a loan that is too large to repay. This is where the other factors take precedence over a credit score when applying for a home loan with bad credit. Basically, it does not matter of an applicant has a perfect 800 score; if they do not earn enough money each month, then they cannot guarantee repayment.

For example, if a lawyer with an income of $8,000 wants by a home worth $1 million, then he may need to make monthly repayments of perhaps $3,500. But living expenses and existing debts might mean expenses of $5,000 are already being paid, so he doesn't have enough. But for someone with an income of $3,500, getting approval loans of up to $250,000 is much more likely, if he has $1,000 free each month.

It comes down to the debt-to-income ratio, where lenders are unwilling to see applicants overextend themselves beyond the recommended 40:60 ratio. So, an approved home loan, despite bad credit, is possible if the repayments are comfortably affordable - regardless of the credit score.

Choose Your Lender

Finally, choosing your lender carefully is important. Some lenders add extra fees and charges to applicants with low credit scores, while others include heavy penalties for any kind of repayment delay. So, getting approval can be a nightmare with the wrong lender.

Generally, online lender offer the best deals, with lower interest rates and better terms than traditional lenders. And the number of approved home loans despite bad credit is proportionately higher. So, take time to look online before agreeing any home loan deal.

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