While you submit application for a mortgage, it is your credit history that is considered as the vital part of the application. Since the lenders consider the bad credit applicants as high risk borrowers, the approval is not guaranteed. The record cases of foreclosures and the downtrend in the economy of the nation have made it more difficult to obtain approval for loans especially with poor credit ratings. However, it is not impossible to get approved for loans even with poor credit score.
What are the available options?
You can qualify for the offer even with poor credit if you work to improve the credit history and convince the lenders about the reliability. Checking the credit history frequently to see what could be done to improve the credit ratings is the first step suggested by the financial advisors. There is the possibility of mistaken entries in the credit history. You can contact the concerned authorities to correct the mistakes by providing valid documents to substantiate your cnbc website statements.
Since the bad credit borrowers are considered risky, the interest rates are high to minimize the risk for the lenders. You need to be prepared to sign the loan agreement with higher interest rates. Some of the lenders offer adjustable rate mortgage to the bad credit borrowers in which offer the interest rate is not the same throughout the loan term. You can try to convince the lenders of your affordability to repay the loan by submitting the income proof.
The debt to income ratio is the important factor for determining the loan approval. If the debt to income ratio is high, it is quite difficult to get the approval as the lenders doubt your ability to manage the repayments. It is suggested that you clear your existing debts before applying for a mortgage. If you do not have any pending debts, you have chances of getting approval for mortgage although your credit history is not very good. Since the lenders are convinced of your repaying ability, you are sanctioned approval.
Down payment helps to get approval for mortgages. While applying for mortgages, be prepared with some amount to pay as down payment so that you can prove your serious intention to the lenders. Your earlier default history can be explained to the lenders who can consider your situation. If you have a better income, you can assure the lender that loan default will not be repeated in future as you have better resources to manage the loan repayments besides meeting regular expenses.
The government loan programs should be considered as they are more reasonable. Federal Housing Administration and the Veteran’s Administration offer loans to purchase houses for eligible applicants. These offers demand minimum credit requirements. The requirements for these offers can be understood through relevant websites so that you can understand whether you are eligible for these offers, before you go in for some other loan for the purchase of home.
If you can get a cosigner for your mortgage, the deal is made easier. You can approach a friend or family member possessing good credit to co sign the loan for you. You can even get eligible for traditional loan from conventional bank if you can get a cosigner. You should be careful enough to make the loan repayments in time if you get approval with the help of a cosigner as loan default will affect the co signer. If you are not sure of your financial stability, it is suggested that you keep away from obtaining a mortgage with a cosigner.