The negative impact that having a bad credit score once had no longer applies when it comes to assessing mortgage loan applications. In fact, because so many of us have low scores because of recent economic troubles, more mortgage loans for people with bad credit are being approved than ever.
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There are a couple of reasons why. Firstly, the situation has changed quite considerably because of the kind of people now with low credit scores. Now, highly responsible borrowers have be caught out the poor economic climate. So, mortgage loans are being sought by those who previously never needed them.
However, the increase in the number of mortgage loans for people with bad credit also comes down to the resulting softening of attitudes by lenders. After all, lenders must grant loans if they are to make profits. And since low scores are now no longer a guarantee of high risk, the gamble is less severe.
Why Credit Scores are No Big Deal
However, the core contributing factor to approvals amongst mortgage loans for people with bad credit is that low credit scores have never been the reason for a rejection. What is far more significant is the debt-to-income ratio.
The debt-to-income ratio has nothing to do with credit scores, which are only an evaluation of repayment history. Instead, it is confirmation to the degree to which a borrower can afford further debt. When assessing an application for a mortgage loan, this is hugely valuable.
The ratio is based on the fact that a monthly income needs to be sufficient to cover unexpected expenses. A ratio of 40:60 is set to ensure that no more than 40% of the available income is ever taken on debts, and there a buffer sum to cover those little extras.
The ratio is strictly adhered to by lenders so it is impossible for mortgage loans to fail to meet it.
Advantages of Improving Credit Score
Still, improving your credit score does no damage at all when it comes to mortgage loans for people with bad credit. Credit scores do affect the interest rate that is charged, with the lower the score, the higher the rate of interest. Logically then, by improving the score the interest rate will fall, thereby making the debt far more manageable.
The most effective way to improve a credit score is to repay debts. And the most effective way to do that in the short term, is to take out payday loans and repay them in full on time. If this is done, the terms of any mortgage loan will improve accordingly.
So, the benefit of an improved credit score will be available at a lower interest rate - though the actual rate can vary between lenders.
Choice of Lenders
There are plenty of lenders out there willing to approve mortgage loans, but finding the best terms requires some effort. Traditional lenders, for example, generally offer the worst terms, with most banks charging high interest rates because of low credit scores.
But loans from online lenders are usually far more affordable. This is because online lenders tend to specialize in loans with bad credit. But, remember that mortgage loans for people with bad credit will always cost more - just not as high as many banks seem to think.