No application for a home loan is guaranteed to succeed, not even when the applicant has an excellent credit rating. But it can seem strange that even those who have very poor credit ratings are as likely to achieve approval as anyone else. This is down to the strength of their application.
Credit ratings are not a significant part of a loan assessment process, and for that reason they are never enough to kill off the chances of an approval. The result is that securing home loans with bad credit is possible when a large enough down payment is made, or the credit rating has been improved, as well as the basic criteria have been met.
But other steps can also improve the likelihood of getting approval with low credit scores, and through a few simple tips, a mortgage application can become stronger and more acceptable.
Know Your Financial Status
It is useful to know exactly where your financial standing is before beginning the process of applying for a home loan. Inevitably this involves learning the credit scores and how they were achieved. The main advantage is learning the strength of the submission, as well as the specific loan terms an applicant can expect.
The process of applying for home loans with bad credit is pretty simple, especially when applying online. All that is needed is for the relevant details to be entered into the application page, and the submit button to be clicked. But convenience and speed will not help secure approval.
When your credit rating is known, it is possible to identify the areas of the application that need to be strengthened. And when that is done, the limitations of your entitlement are also learned. Armed with this information, the likelihood of getting approval with low credit scores is improved greatly.
Improve Your Credit Score
Improving your credit score can be very helpful too as it has an influence over the interest rate that the lender charges. When it comes to applying for a home loan, increasing your score lowers the interest rate, which can translate to very significant savings over the lifetime of the mortgage.
The only way to improve the scores, however, is to clear some of the debt that exists. There are three chief ways to do this. Firstly, a series of small personal loans can be used to clear debts one by one. A loan of just $1,000 is not difficult to repay over 3 months, and taking out 3 or 4 over the course of a year could make a big difference.
A second way to improve the credit scores before applying for a home loan with bad credit is to take out a consolidation loan, uniting the different debts into a single one, and then repaying it on better terms than the original loans. This is the fastest and most affordable option.
A third way is to simply pay off your debts in a structured way. So, with some patience, securing approval with low credit scores is more likely.
Add A Cosigner
This step packs the biggest punch. Including a cosigner effectively means that the home loan is guaranteed. A cosigner consents to pay the mortgage when the borrower is unable to, and with the assurance that repayments will be made, the interest rate is usually lowered.
With the interest reduced, the loan becomes even more affordable, which reduces the chances of defaulting on the mortgage. Therefore, securing home loans with bad credit becomes much more possible.
Also, making a large down payment can greatly improve the chances of getting approval with low credit scores, by reducing the size of the mortgage required.