Is it still possible to get a home loan with bad credit?
Bad credit ratings can cause all sorts of nightmares when you need home loan. The common perception is that neither banks nor lenders alike would consider someone with bad credit to be reliable enough to lend money to. The rules aren’t just restricted to home loans, even if you need a car loan, your credit rating would come under scrutiny. As far as your home loan is concerned, we have quite a few tips up our sleeve that may increase your chance of getting your loan approved.
Choose a lender who doesn’t use credit scoring:
Many lenders use a credit scoring program for evaluating your credit “worthiness” prior to approving your home loan. If the program gives a low score, this means you are a risky candidate and the application could be declined.
However, if you apply with a lender who does not rely upon a credit scoring system then your previous credit problems will have far less impact on your current aspirations. You will be personally assessed by a real person to whom you can explain the reasons behind past situation and possibly convert the lenders decision in your favor.
Avoid Lenders Mortgage Insurance:
While applying for a home loan, applicants are required to seek two approvals if borrowing over 80% of the property’s value; one from the lender and another from a mortgage insurer. The mortgage insurer is responsible for covering the loan in case the borrower fails to pay loan. What you can do to avoid seeking approval or getting assessed by a mortgage insurer is to cover 20% deposit as well as additional costs like stamp duty and legal fees. Alternatively there are some lenders who have the ability to effectively sign off on the loan on behalf of the mortgage insurer – meaning that if that lenders approved your application the mortgage insurance is automatically approved!
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Prove that your Financial Situation has Improved:
In the world of finance, it can be quite difficult to let bygones be bygones – your previous financial situation will always come into consideration whenever you try to get home loan or car loan. A person’s financial position can improve over time, and this may help with some lenders. All you need to do is to prove that your life is back on track by showing that you have been paying your financial dues on time such as credit card bills, rent and utility bills. If there is evidence of regular savings, your case will become stronger.
Choose a Specialist Lender:
“What if I have bad credit?” Based upon the severity of your credit history it is possible that mainstream lenders might not be too interested in your application. However, there are a number of specialist lenders who cater for these types of scenarios. Their rates and products are set on the basis of the risk involved. The interest rate offered by specialist lenders can be higher, but not in all cases – if the risk is low you may still qualify for a lower rate with these specialist lenders.
Specialist lenders are generally a temporary solution, and these lenders are fully aware that you will likely move back to a mainstream lender once you’ve been with them long enough to clear up any issues and show good repayment history.
Seek Professional Advice:
If your credit situation has been difficult in the past and you want a home loan now, you could try one of many specialist credit repair agencies. These agencies are there to assist you regarding how to improve and clean-up your credit report. You may consult them directly or through a solicitor to check if they can remove adverse entries from your credit report. I would always suggest getting at least three quotes, and confirming what their guarantees are, as they can differ dramatically.
The Fewer the Better:
No matter how intriguing you find the idea of applying to multiple lenders or shopping around for the best rates, it is not at all a good strategy when it comes to your credit score. Remember that when you apply to many lenders simultaneously, every single application is recorded against your credit report and these enquiries, whether they proceeded or not, can dramatically impact your credit rating and your credit score.
“But how do I shop around for a great rate??” Go to a reliable mortgage broker for shortlisting lenders. A quality mortgage broker will assess which of the lenders in the market may approve your loan and will inform you about fees, charges and interest rates. The key is to be honest and forthcoming with your broker; explain the reasons behind your previous credit issues. If you are buying your first home, moving out, looking for a refinance or making investment in property, you can seek the help of mortgage broker.
Are you paying too much for your mortgage? Check out this video on lender loyalty and find out if your bank is really looking after you!
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