There is no point in pretending mortgages are the easiest loans to get approval on. The sheer size of the money being borrowed, and the fact a 30-year commitment to the debt is required, mean lenders require some convincing before a mortgage loan with bad credit can be given the green light.
So, the secret behind securing bad credit mortgage loans is pitching a convincing application in the first place. The fact is that, once all of the boxes have been ticked, there is very little reason for a lender to turn an applicant down.
It is true that bad credit ratings are not completely ignored, but they have a minimal influence over the issue, extending only as far as the interest rate to be charged. A low score will mean a high rate; a high score will mean a low rate.
For this reason, mortgages with low credit ratings are available, with the deal breaker simply the matter of affording the repayments or not.
Convincing Aspects of an Application
There are a number of points that lenders look for when assessing applications for mortgage loans with bad credit. First and foremost is the matter of income, with an applicant needing to prove that they are full-time employed. But job duration is also important. Getting a new high-paying job is fine, but without signs of job security it is meaningless.
Also, even if job security and income are both high, the debt-to-income ratio is hugely important. Applications for bad credit mortgage loans must fit within the 40:60 standard that is preferred in the lending industry. So, even a monthly salary of ,000 will fail to secure the mortgage if the ratio is broken.
This may seem a little unfair, but it prevents borrowers of mortgages with low credit ratings from putting themselves in a financially delicate situation. To that end, the lender is doing the applicant a favor.
Saving A Large Down Payment
Lenders pay special attention to the down payment that applicants have managed to save, for two reasons. Firstly, it affects the size of the mortgage required, and secondly, it tells them a lot about the sense of commitment the applicant has. So, when seeking a mortgage loan with bad credit, it is best to have as large a down payment set aside as possible.
Generally, the lump sum is 10% of the purchase price of the property in question, but increasing the percentage to 15% or even 20% convinces the lender that the bad credit mortgage loan is extremely likely be repaid without a hitch. If a house costs 0,000, then a 20% down payment, lowers the loan to 0,000, making the payments more manageable,
However, the commitment shown to get perhaps ,000 together to make the down payment, means lenders can be sure that the applicant is taking such mortgages with low credit ratings very seriously indeed.
Getting Debts in Order
Of course, existing debts are going to have a bearing on the chances of securing a mortgage loan with bad credit. Again, this relates to the debt-to-income ratio, and if it is tight, there are some steps to take that can improve matters when applying for a bad credit mortgage loan.
Taking out a consolidation loan, for example, will replace existing debts with one loan. This usually means a smaller monthly repayment, which in turn creates more room for a mortgage. This tactic is especially useful for an applicant applying for a mortgage with low credit ratings.
With signs of a concerted effort made to put your debts in order, lenders can be sure that every preparation has been made for the long-term commitment of taking on a mortgage loan with bad credit.