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Home Loans for People With Bad Credit Are No PR Gimmick

June 29, 2012 | Comments: 0 | Views: 142

It can seem unbelievable that lenders would be willing to grant large sums to borrowers with poor credit histories. The size of the debt involved in buy a new home, for example, is huge so avoiding such applicants would make more sense. But there are home loans for people with bad credit available that make buying a new home very much a possibility for all of us.

The fact is that lenders need to have a clear idea of who they are lending their money to, and whether they can be trusted to repay the debt. This is generally on this basis that getting application approval rests, so a poor history can make the task all the more difficult.

People can be forgiven for not trusting the news that getting a home loan is impossible for them when they have a low credit score to their name.

Why These Loans Work

There is a reason why these loans exist, and why traditional lenders are happy to approve applications for them. But making home loans for people with bad credit viable involves the introduction of some conditions. The key condition is that they are used to finance the construction of a home rather than buying a pre-built one.

This might seem strange, but generally the sum of money applicants qualify for is lower than the market price of most houses. What it is perfectly suited to is the purchase of a greenfield plot and the costs of having a home constructed. Getting application approval is that little bit easier because the overall costs are so much lower, while the value of the completed home is higher on the market.

This means that the equity increases immediately, which is good news for any homeowner. It means that the home loan can be recovered almost immediately. So, the debt becomes an affordable one.

Criteria to Consider

The personal history of the applicant can have a bearing on the affordability of the debt. Matters like a recent divorce, a recent move or especially a bankruptcy ruling makes offering something like a home loan for people with bad credit a major risk. This is because the effect that these situations can have on a financial status can be very serious.

Regardless of which lender an applicant goes to, the interest rate is certain to be higher than normal. This is to be expected, since the low credit score suggests a risk that lenders must compensate against by increasing interest. However, it also means that getting application approval becomes that little bit more difficult, since the monthly repayments are higher.

But it is possible to lower the interest to be charged, and in doing so make the home loan affordable. All that is needed is for three criteria to be improved before the application is made.

Lowering Interest to be Paid

There are three factors that affect the interest rate that a lender will charge. And given the nature of home loans for people with bad credit, paying close attention to them can help an applicant save tens of thousands of dollars on repayments over the lifetime of the loan.

The first is the size of the mortgage being sought, with the higher amount borrowed the higher the potential losses to be made. Ensuring that the sum being sought is realistic is as important as anything else.

Second is the use of collateral as part of the application, this factor reduces the risk of losses, improving the chances of getting application approval and lowering the interest to be charged.

Finally, the income that the applicant earns is the clearest indication of affordability, and if there is enough then the chances of getting approval on the home loan is must stronger.

Want to learn more about Guaranteed Bad Credit Personal Loans and Bad Credit Home Loans? Please subscribe to my channel.

Source: EzineArticles
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