Owning your home is a dream almost everyone has, but it is not something that cannot be done on a whim – it requires money, and lots of it. The problem for the majority of home hunters is that having a poor credit history plays havoc with approval chances. But despite this, it is still possible to get mortgage loans with bad credit.
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The best chance of getting the mortgage needed to buy the home desired is to prepare carefully for your application submission. It is never actually a matter of securing mortgage approval with bad credit, but in doing so with a convincing application.
Having a good credit score is an excellent advantage when applying for a mortgage loan, but it is not the core reason for approval. Nor is it the reason that an application may be rejected. So, even an applicant with a terrible credit history can secure the finances needed if their current financial situation is strong.
Here are some points that can help in guiding the way to approval.
1. Know Your Credit History
This might sound obvious, but knowing your credit history is something more than knowing your credit score. What needs to be ascertained when reading your credit report are the reasons for the low score. Getting a mortgage loan with bad credit can be tricky, but with the right areas identified, it is possible to more accurately strategize.
The biggest advantage, however, is in being able to spot any errors in the report and, therefore, the credit score. It is not unheard of for the reports to be missing recent information, such as a debt that was paid off or arrears that have been addressed. This can mean a significant score increase.
Ordering a review of your credit report can help in securing mortgage approval, since an improved score means improved terms (like lower interest). However, mortgage loan approval is not solely decided on by scores and credit histories.
2. Know What Is Affordable
A common mistake that home hunters make is to apply for a mortgage loan with bad credit when there is little or no chance that they can afford it. All too often, a dream home is out of our financial reach, but we try anyway. This is a bad idea.
The reason is that lenders quickly reject the application once they have calculated the sum is not affordable. This can reflect poorly when approaching another mortgage provider later and jeopardize the chances of securing mortgage approval at all. But more than anything else, it is a wasted opportunity.
Knowing what is affordable means working out how much your excess income is by taking your total monthly outgoings from your total monthly income. Then, using the debt-to-income ratio (40:60) estimating how high the monthly mortgage loan repayment can be.
3. Make Things Better
The third key step to take is to look at how your own application can be strengthened. For example, perhaps a larger down payment should be made, paying a 20% sum rather than the normal 10%. This will undoubtedly improve your chances of getting a mortgage loan with bad credit since it reduces the size of the required mortgage.
Another option is to seek a longer mortgage loan term, perhaps a 35-year mortgage rather than the more usual 25-year term. This means that the principal sum borrowed is divided into more monthly shares and, therefore, lowering the size of the monthly repayment. With less to pay, securing mortgage approval is easier.
Finally, be sure to be completely accurate with your information when submitting your mortgage loan application. Over the 60 days or so of the approval procedure, the mortgage providers will closely examine everything. Detailing your assets could build a positive image and help towards mortgage loan approval.