Getting Home Loans Even With Bad Credit

A lot of people come to a point where their credit is not that good. And to those who have already experienced having bad credit, they know how hard it is to get a loan or in many cases, it may even be impossible.

Fortunately, there are some lenders that still offer loans to people with bad credit. These are “bad credit loans for homes” – a type of home loan that gives you a chance to get you into a new home even if your credit rating is low.

Understanding Bad Credit Loans for Homes

A bad credit loan for a home is a type of mortgage being offered to home buyers with a poor credit rating. It is most suitable for people who have lost a job, undergone a divorce, had an injury, or had a failed business venture which resulted in defaults showing on their credit file. These types of loans are designed to help you get access to home loans even if you have previously filed for bankruptcy or had accounts forwarded to collections.

Most major banks or the so called “traditional lenders” will most likely not consider your home loan application if you have bad credit. However, you can still get a chance to get approved for a home loan despite having a bad credit score with the help of non-conforming lenders. These are financial institutions willing to approve your loan, but, with higher risks involved.

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Risks in Applying for a Home Loan with Bad Credit

Getting a loan with a poor credit rating is not going to be very easy. Since having black marks on your credit file implies more risks on the part of the lender, interest rates are going to be higher. And, compared to conventional mortgages (where interest rates does not change during the term of the loan), bad credit loans for homes determines the rates and terms of the mortgage. These loans will also most likely have pre-payment penalty, balloon payment penalty, or even penalties for both.

•    Prepayment penalty – it’s a provision in your home loan contract that in the event that you pay off the entire amount of your loan before the term ends, you’ll be paying a penalty that’s usually a percentage of your outstanding balance at the time of your prepayment.

•    Balloon payment penalty – this penalty requires you to pay your outstanding balance in a lump sum after a specific period which is usually five years; failure to pay this amount may lead to foreclosure so selling or refinancing your house could be one of the best solutions if you know that you can no longer pay before the period ends.

These are the risks involved in bad credit loans for homes. But, failure to pay your credit card bill does not necessarily mean that you’re automatically bound to face these higher credit risks. There are many other factors to be considered as having a bad credit and lenders do follow a general guideline to determine whether you’re a candidate for this type of loan.

Considered as Bad Credit

•    Below 620 credit score
•    Two or more 30 days delinquencies on mortgage in the past 12 months
•    One 60 days delinquency on mortgage in the past 12 months
•    A foreclosure within the past two years
•    Bankruptcy within the past two years
•    Over 50% of debt-income ratio
•    Failure to cover daily living expenses over a month

The above factors are some important aspects to consider in reviewing your credit status. To know where you stand, it’s advisable to speak to a professional and ask for other available options to somehow avoid greater credit risks.

Owning a home is one of many people’s dreams. However, if you’re aware that you have a bad credit rating, you might as well take time to fix this credit score first before you apply for a home loan. This gives you an assurance of getting approved without the fear of facing higher interest rates and penalties which might just lead to more problems or even foreclosure.