The chances of getting a mortgage are usually narrowed considerably by low credit ratings, with most mortgage providers skeptical over the chances of avoiding repayment hitches in the future. But that is not to say that getting a home loan mortgage with bad credit is completely out of the question.
The lending terrain has changed quite a bit in recent years, with so many trustworthy borrowers having fallen on difficult financial times. The result has been to see them struggle to meet debt repayments, thus causing their credit ratings to fall. But as borrowers, they remain honest.
It means that many lenders realize they can grant approval with poor credit history since the lines between trusted and untrusted borrowers are no longer defined by a credit score.
And this means that access to home loan mortgages are possible. What must be remembered, however, is that the terms are not going to be ideal.
Qualifying for a Mortgage
So what is needed to qualify for a mortgage? If bad credit borrowers are now viable mortgage customers, what is the criteria that they must meet to get the home loan mortgage with bad credit and buy the home they want?
There is a number of basic criteria that are well-established, such as the applicant being over 18, being a US citizen and having held a full-time job for at least 6 months. Each of these can be confirmed with some documents, putting the applicant in the frame for approval with poor credit history.
However, there are more critical qualifying factors that need to be satisfied. Perhaps the most important of them is the debt-to-income ratio, which reveals what home loan mortgage is affordable.
The Debt-to-Income Ratio
The debt-to-income ratio is something that lenders adhere to for every loan application. Set at 40:60, it restricts the amount of excess income that can be used to repay debts each month to just 40%. This is to ensure that an applicant who gets a home loan mortgage with bad credit will not end up falling into further financial trouble.
With 60% left over to meet any unexpected bills and expenses that might crop up, the chances of that happening are reduced dramatically. But it also means that what many applicants think is affordable, actually is not, making approval with poor credit history that little bit harder.
Basically, after monthly income and average monthly expenditure are compared, if the excess income is ,000, then repayments on a home loan mortgage can be no more than 0. This limits the size of the mortgage considerably.
Ways Around The Ratio Problem
There are two key ways to overcome the problem that a debt-to-income ratio can throw up. The first is to simply improve your credit score and ratio figure. This is done by taking out a consolidation loan and clearing as many of the existing debts as possible, thus helping to make a home loan mortgage with bad credit more attainable.
With debts cleared, the credit score improves, and with it, the interest rate on the mortgage is lowered. And with less to pay out in debt repayments, the amount of excess income is increased, thus improving the debt-to-income ratio. So, getting approval with poor credit history is helped greatly.
Another method is to increase the down payment made on the property, thus reducing the size of the required home loan mortgage. Usually, a 10% down payment is required, but increasing it to 15% or 20% can save thousands every year in repayments.