It is understandable if a person with a low credit score were to think that their dream of owning their own home was practically gone. It is often difficult enough to get the mortgage necessary to buy the desired house or apartment, so a poor credit history is surely set to make it impossible. But, in fact, with a mortgage loan with bad credit, the ability to buy is still there.
The fact that the world has been struggling through global recession for the past few years, means that getting any kind of loan is not a cut and dried certainty. However, as with everything else, if the correct criteria is met then getting even mortgage loans approved despite bad credit is not out of the question.
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The reason why lenders are willing to take the risk is simply down to the fact that the vast majority of people with poor credit are seeking opportunities to regain a good credit rating. By including mortgages for people with bad credit in their list of products, lenders are able to capture a share of that market. But that does not take from the fact that there are conditions to every mortgage loan approval.
Conditions For a Mortgage
The conditions that exist for mortgage loans with poor credit are the same as with any loan, with proof of employment and income both key amongst them. This makes perfect sense, since the ability to repay the sum borrowed over a prolonged period of time is central.
The chance of getting a mortgage loan approved despite bad credit is increased dramatically if the applicant is in full time employment, and preferably has been for a few years. This shows that the applicant is likely to retain their job and not find themselves being fired. Of course, with regards any loan, not just mortgages for people with poor credit, it is essential that an income continues to be earned, otherwise the loan cannot be repaid at all.
Other conditions to getting a mortgage loan with bad credit relate to the citizenship, legal status and age of the applicant, which are also normal conditions for prospective borrowers to meet.
However, for some lenders there is an added condition asking for evidence that concerted efforts have been made to improve on bad credit scores. Good indications include a small debt consolidation loan being regularly paid or progress being made on credit card debt, but if there are none then getting a mortgage loan despite poor credit may be difficult.
Significance of the Down Payment
The significance of the down payment cannot be ignored when talking about mortgages for people with bad credit. Under normal circumstances, a down payment of perhaps 10 per cent of the property value, is paid to secure the house or apartment. By paying a much larger deposit, say of 20 per cent, lenders can see the determination the purchaser has, so they feel more confident when issuing a mortgage loan with bad credit.
And, because of the higher amount paid, the required loan sum is less, making lenders happier to grant a mortgage loan despite bad credit. From the point of view of the borrower, the repayments are lower, the interest paid is less and the mortgage duration is also down.
Credit Ratio
Credit ratio refers to the percentage of discretionary income that is taken up by debt, with the ideal ratio 40 per cent debt to 60 percent discretionary income. So, a mortgage for people with poor credit can be approved if the every day expenses are low, whereas it might be reject for those with a good credit history because the ratio is against them.
Getting a mortgage loan with bad credit may never be guaranteed, but clearly it is a very real option.
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