Like any other loan, home loan applications never come with a guarantee of success. There are too many aspects of the application that need to be in order, and too many considerations relating to the economy that lenders need to take into account. So, it stands to reason that getting approval on home loans with bad credit is far from a cut and dried task.
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The good news is that home loans today are more commonly approved than ever before, mainly due to the realities of the economy. Many people have poor credit ratings today, not because of foolish financial habits but because the economic collapse of a few years ago hit them hard.
So, getting home loan is not impossible because lenders are more open to the fact low scores are not accurate indicators of risk anymore. Still, your chances of success can be improved by taking a number of steps before submitting your application.
Know Your Score
The first step is to find out your credit score, a move that will allow a more accurate application strategy to be developed. The reason why is that in seeking home loans with bad credit, your budget is severely affected. This is because the low credit score means a high rate of interest will be charged.
Home loans are extremely large, with the average required figuring around $250,000. With a high interest rate, the monthly repayments can be extremely high, perhaps as much as $1,200 every month for 25 years. But if your credit score is improved, it means the terms on loans will improve too.
The trick to increasing your chances of getting approval is to increase the score, and there are a number of things that can be done to achieve this.
Improving Your Rating
The first step that should be taken is to order the credit agency to review your score ahead of making any application for home loans with bad credit. It is surprising how often the score is not completely up to date. So, if a loan was recently cleared, it might yet be included in the rating score.
Another move is to take out a personal loan to consolidate all of your existing debts. So, the balance on your auto loan, your credit card debt and an existing personal loan balance can all be cleared, leaving one loan with one interest rate. Your record will show each of those debts cleared, which then improves your credit score, thereby strengthening your application.
Also, taking out a series of payday loans and repaying them quickly also helps. A small loan of $500 can be repaid in one go after just 1 month. By taking out and repaying 4 or 5 of them over 4 or 5 months, your score improves with each loan repaid. So, the chances of getting a home loan is also improved.
Find a Cosigner
The least costly move, however, is to find someone willing to be cosigner. When seeking home loans with bad credit there is no better inclusion in an application than a cosigner willing to make repayments should the borrower be unable to. The lender is happy, and because the risk is reduced, the interest rate is lower.
Be sure the cosigner is suitable though, otherwise getting home loan approval with bad credit is unlikely. He or she must have a good credit rating, have ample income to cover the repayments and, ideally, should be relative.