The myths surrounding home loans and mortgages make it seem that such loans are impossible to those with bad credit histories. But the existence of home loans for those with bad credit highlights the fact that this is not true.
Because of the size of a home loan, there is considerable importance placed on getting accurate information before committing to a home loan. After all, when a home worth $200,000 has been purchased, the debt can last for more than 30 years, making it a debt for life – almost.
The truth is that while bad credit ratings do have an influence on the rate of interest charged and even the size of the mortgage made available, rejection of an application is down to other issues. So, while there remains no such thing as guaranteed loan approval despite bad credit, there is at least an opportunity to improve the chances of getting approval when the realities are known.
The manner in which bad credit scores are calculated is quite complicated, but the principal is not. In its simplest terms, bad credit occurs because of poor money management, bad financial luck or unexpected and quite sudden financial pressures causing defaults, late payments and even bankruptcy. So, those eyeing home loans for those with poor credit can have widely varying stories.
The lowest score that a person can have is 300, with the highest 800, and it is between these values that the actual score resides. People with high or excellent credit ratings figure between 700 and 800, while those with very low credit ratings rank between 300 and 600. Those with scores between 600 and 700 may qualify for a home loan, but it depends on the lender.
Of course, the scores can also be improved. Every time a loan is repaid in full, regardless of its size, the credit score is adjusted favorably. It may never be enough to make guaranteed loan approval despite bad credit a reality, but the benefits relate to lower interest rates.
The Significance of Income
It hardly comes as a surprise that the monthly income of an applicant is a hugely influential aspect of any application for home loans for those with bad credit. It is far more influential than a credit score because it confirms whether or not repayments are possible. The credit score suggests the likelihood of whether the repayments will be made at all.
So, even if an applicant has a terrible credit score, if his income is big enough – most especially the excess income – then home loan approval is possible. In contrast, if an applicant with an excellent credit rating has too small a monthly income, then he will be rejected.
For self-employed applicants, the issue of income is not simply a case of showing a pay slip. The profitability of the business of the applicant needs to be examined. If the business is not profitable, then logically the applicant as no income, so the chances of a guaranteed loan approval despite bad credit is practically zero.
Improving Your Score
Improving your credit score can make a big difference in securing home loans for those with bad credit. The most effective way to do so is to take out a series of small loans, like payday loans, and repay them in full. With each debt cleared, the credit score increases and the terms of a home loan improves.
This may take some time to have the desired effect, of course, but after 6 or 8 months, a guaranteed loan approval despite bad credit will be closer than ever. And in that time, the search for the right lender should be ongoing, with the online lenders typically offering the best deals.