When it comes to securing home purchase loans with bad credit, whether through a traditional lender or an alternative lender, the approval process can differ by quite a margin. Approval chances can also vary, as can the terms and the generally affordability of the financing deal. But what both have in common is a chance of securing approval.
A mortgage is probably the largest debt anyone will taken on in their lives, so it is to be expected that there be difficulties in nailing down the best deal. The promise of guaranteed mortgage approval is sometimes offered, but it would be foolish to believe in it. What does exist is a way to improve the chances of approval.
A home purchase loan is available even to those borrowers with low credit ratings. And while compromises need to be accepted, the borrower can at least feel confident that a mortgage package is out there that best suits their particular needs.
Do Guaranteed Loans Exist?
It is a little misleading when lenders advertise guaranteed approval for a loan of any description. All loans have criteria that must be met before the application itself can even be considered - such as age requirements and citizenship. When it comes to securing home purchase loans with bad credit, loans that are extremely large, guaranteed mortgage approval cannot be promised.
What can be guaranteed, however, are matters like no credit checks, where the lender ignores the credit score of the applicant. In such cases, set interest rates are charged regardless of how good or bad the score is, and these are usually higher than normal to cover the risks of such a policy.
Of course, home purchase loans can be as large as 0,000, depending on the value of the home being purchased, and so the interest can be very high. But there are some ways to increase the chances of approval, thus making it practically guaranteed.
Steps to Improving Approval Chances
So how can the chances of approval be improved? Well, the success in securing a home purchase loan with bad credit rests on the ability of the applicant to prove they can afford the repayments. This chiefly comes down to the debt-to-income ratio.
The ratio is calculated by adding all existing outgoings per month and measuring the figure against the total income. The ratio stipulates that no more than 40% of the excess income be used to make payments. So, if excess income is ,000 per month, the closest an applicant can come to guaranteed mortgage approval is to secure a mortgage requiring only 0 per month.
Drastically lowering existing debts will improve the situation, ensuring a greater excess income. A consolidation loan can do the trick, clearing the debts in one go and replacing them with a loan requiring lower monthly repayments. This must be done several months before seeking the home purchase loan.
Of course, what may be affordable now may not be so 5 or 6 years from now. What recent times have proven is that a sudden economic crisis can change our financial status very quickly, so having contingency plans in mind when seeking a home purchase loan with bad credit is a good idea.
Thankfully, it is always possible to refinance a mortgage deal after a number of years, often using home equity to leverage extra financing. And when repayments are made regularly, the overall credit status improves too. It makes approval (though still not guaranteed mortgage approval) much more likely when applying for future loans.
Negotiating a new home purchase loan will save money every month, ensuring your home repayments are always affordable. And that protects against the risk of defaulting and losing your home.