Why Securing Mortgage Loans With Bad Credit Can Mean Lower Interest
It is an accepted fact that the credit score an applicant has has a
direct influence on the rate of interest traditional lenders charge. But
with online lending, where credit scores are simply not included in the
equation, this fact does not necessarily apply. Securing mortgage loans
with bad credit no longer guarantees a high interest rate, but can
instead come at lower rates.
There are plausible reasons why a combination of bad credit and low
interest rates are possible, not least the fact that, in recent years,
many honest people have been caught out by the economic downturn. It may
still be impossible to get guaranteed approval, but lenders are more
willing to trust the applicants who have a reliable source of income
over.
their credit scores.
And since online lenders tend to specialize on loan packages designed
for people with low credit scores, even their mortgage loans can be
considered affordable by almost everyone.
Online Mortgage Lenders
For online lenders, competing with the long-established traditional
lending institutions is a major challenge. But by publicizing the fact
that credit scores bear no influence over the approval process, they
have become more attractive to consumers. And with the rate of interest
also kept low, getting a mortgage loan with bad credit scores does not
mean a lifetime struggle to pay them.
The fact is that even offering guaranteed approval is not always enough
to win the day for banks. If an online lender can charge a rate just
0.5% below a normal bank, the savings over the lifetime of the mortgage
could be huge. Savings of just $100 per month on a 30-year mortgage
could mean the borrower pays $36,000 less - a significant sum.
We know that mortgage loans are probably the biggest single type of
personal debt that most people will ever take on. So, the attraction
that savings, especially of such size, has to the consumer is not
difficult to understand. Nor is the fact that online lenders are known
to offer the best deals.
Markers Worth Considering
However, the generosity of online lenders is not endless. When seeking
mortgage loans with bad credit, there are some conditions that need to
be taken into account.
Often a down payment is necessary. While getting a guaranteed approval
might seem like a gift from heaven, knowing what is a good deal rests on
knowing how much the down payment should be. Knowing what a credit
score is gives a very accurate indication.
For example, if an applicant has a score that is below 585, then a down
payment of at least 10% the value of the property is expected. If it is
between 585 and 599, then a down payment of around 5% is expected.
But, if the score is 600 or above, a mortgage loan worth 100% the
property value could be secured, though this does depend on the lender.
What About Bankruptcy?
For some, applying for mortgage loans with bad credit scores, bankruptcy
is the key concern. But even in this regard, many online lenders have
an open mind with the period of time since the ruling their only
consideration.
It is generally expected that after 2 years, someone who had been
declared bankrupt will have improved their financial situation
significantly. While guaranteed approval is out of the question,
applicants are considered on their merits.
After 3 years, the chances of getting a mortgage loan is improved on
again. However, it is advised not to seek any mortgage within a period
of 2 years after a bankruptcy ruling.
