Whilst there is little doubt that buying a house with bad credit is more difficult, a poor credit history isn't an insurmountable obstacle. Whilst adverse credit mortgage lenders use credit scoring, they may be prepared to offer a mortgage loan for people with bad credit at a higher APR, provided a different set of criteria can be met. They are interested in the customer's employment history, existing debts relative to their income and home equity or house deposit.
Get Approval When Buying a House with Bad Credit
Adverse credit mortgage lenders entered this specialist market with a full understanding that customers will have a history of missed and late payments. In order to understand what leads to acceptance or rejection, it is necessary to think like the lender. Their objective is to ensure that the customer is able to afford the repayments to avoid future problems. In the event of default, they need to be sure that there is sufficient equity to recover their money should home repossession be necessary.
A Mortgage for Poor Credit Requires Stable Employment
Buying a home with poor credit will require a consistent work history. The longer that person has been in the same job, the less likely they are to experience a financially dehabilitating change of personal circumstances. A stable income makes it easier to keep up with the repayment schedule. Never apply for mortgage loans for people with bad credit if in temporary work, contracting or in a probationary period. Most adverse credit mortgage lenders will want the applicant to have held the same job for at least six months.
Existing Debt and Mortgage Loans for People with Bad Credit
Lenders will closely examine the borrower's income to debt ratio. Should the amount of personal debt relative to their income exceed 36%, approval for a remortgage with adverse credit is less likely. This is important because the incidence of default increases as disposable income diminishes. The borrower has less scope to survive financially should there be a change of personal circumstances.
Home Equity and Buying a Home with Poor Credit
A few years ago, there were several adverse credit mortgage lenders offering 100% mortgage deals. Falling property prices and rising foreclosure rates have meant that this has changed. In order to get a bad credit mortgage deal, it is necessary to provide a house deposit or home equity of about 20-25%. This is because, in the event of default, the lender wants to be able to recover their money. Like credit card debt, repossession deficiencies are unsecured so can be easily eliminated.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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