Buying your first home can be an awesome challenge, especially if you have little to no idea about the technicalities which surround the process of real estate property acquisition. Buying property and acquiring it requires more than just paying for the commodity, you have to undergo several processes as well.
Before purchasing a property, however, you may be faced with the dilemma of putting it off until you have enough funds to pay for it, but sometimes, some deals are just too good to pass it up. With this in mind, getting a mortgage loan to acquire a house can be a good idea, especially if your savings still have a long way to go.
In this regard, getting a mortgage loan can be your best move to grab the opportunity and strike while the iron is hot. Unfortunately, some of you may currently be in a bad financial situation. There are moments in life where problems pile up, and it ultimately takes its toll on your economic stability.
In consequence, you may be faced with a sea of piling bills and debts which may be difficult to get out from under. Despite these setbacks, great opportunities may present themselves to you when you least expect them. Some of these opportunities may be your only shot to rise from these setbacks, and the only thing that is holding you from grabbing these opportunities may only be your finances.
In scenarios like these, getting a little help with obtaining a loan wouldn’t hurt, as long as you know how to take calculated risks and appropriately spend in a way which can benefit you in the long run. Getting your loan application approved can be challenging, especially if you have a bad credit score.
You have to take note that there are certain sets of criteria which many creditors impose before you can get approval, and you must pay attention what these criteria are to get your loan approved with the best possible offers.
Your credit score is one of the things which many lenders look into to see if you are qualified to get your loan approved or not. A credit score is a numerical representation of how good (or bad) you are with paying your debts on time (if you paid at all) in the past. This is done by the credit bureau which collects reports from your creditors on a regular basis on how you fared with your debts and, in turn, they give you a score for it.
Ideally, credit scores which range from 700 and up are usually considered as good scores, while those which fall below 500 are considered low. However, having a low score doesn’t necessarily mean you are not capable of paying back your loan, given that other borrowers only have low scores due to lack of credit history.
Other factors are also looked into by many lenders. Before you apply for a loan, it is important that you will determine what the qualifications for the mortgage are. As much as possible, you should want to fit into these qualifications to have your loan approved. At this rate, the factors which lenders consider before granting a loan are:
1. Credit Score Rating – your credit history can tell your prospective lender a lot about how good you are with paying your loans back. You should aspire to a good credit score, given that most creditors approve loans with good to excellent ratings (a score of 700 and above). Bad credit scores indicate how you were unable to pay some of your debts on time, and this can hurt your chances of getting your loan approved.
2. Loan-payment Capability – sometimes a borrower may not have enough credit history to judge you on, especially if you are young and just starting building a credit profile. In consequence, a borrower’s credit score may be low initially, which is why other criteria are also looked into by many lenders. This criteria is a borrower’s capability to pay back the loan.
Most lenders require applicants to show them some proof of billing for the past couple of months, along with your rent payment history. Make sure you’re paying these on time to increase your chance of loan approval.
3. Source of Income – your source of income can also be checked by your prospective lender. Your career, or your means of earning money, can indicate if you can pay back the loan or not.
These are only some of the criteria which many lenders use to help them decide on whether they should approve your loan application or not. While it is ideal for you to have a good standing in all these aspects to have a higher chance of approval, it doesn’t mean you can’t get your loan approved if you’re subpar with one of these criteria.
Each of these criteria is only a piece of the entire puzzle, so being bad at one of them may decrease your chances of getting a loan approval, but compensating with the other criteria can still get you the loan.
In cases where you have an outstanding mortgage, but you want to take out another loan either to get your interest rates lower or to use the money to pay off certain debts, other options such as home equity loans and mortgage refinance is available for application.
As mentioned earlier, your credit score is only one piece of the entire puzzle. If you fall short in this category, then you may compensate for it with the other criteria to the extent where a lender can still consider your refinance or mortgage application. If you have a bad credit history, then you’ll have to expect a few setbacks with your refinance loan.
If you have a bad credit score, then you should expect high rejection rates. Only a few lenders approve loan applications from borrowers with bad credit. Once you get your loan approved, don’t expect to get the lowest interest rates. Creditors can assess the associated risk that comes with your loan and the higher risk, being unable to pay them back, the higher the interest rates of your refinance loan would be.
Since you are considering getting a refinance for your mortgage, then you should also make sure you have high equity in your property. Creditors usually require an 85% loan-to-value ratio, although some may go as low as 70%. High equity indicates your capability of paying your previous loan, and this can boost confidence of your lenders in your capability to pay.
As mentioned earlier, you should also compensate for your shortcomings in the credit score with other qualifications. You can do this by presenting your lenders with your recent proofs of billing, show them you were able to pay for your bills and for your rent or mortgage amortization on time for the past twelve months.
You can also show them how stable you are financially by showing them your proof of employment, indicating your salary. Ideally, your loan’s amortization should not exceed 40% of your salary or source of monthly income for them to consider you as a borrower.
From the lender’s point of view, a loan amortization which comprises more than 40% of an applicant’s income may indicate that the applicant may either compromise his or her basic needs or the payment for the loan, so you better keep your loan proportionate with your salary. With these in mind, you can still grab the opportunity to have a mortgage refinance despite your bad credit history.
Ultimately, obtaining a mortgage or refinance loan can be a wise decision, especially if there are financial opportunities that lie ahead. If you want to make a loan, make sure you already have an intended use for that money. As you apply for a loan, several factors must be taken into mind to ensure you are getting the approval of your lender despite having a bad credit score.
Credit scores are only one of the criteria that lenders look into and having a bad score doesn’t automatically disqualify you from getting that loan. You can still apply for a mortgage or refinance loan by compensating with the other qualifications such as your source of income and your history of bill payment.
Make sure you will make your application as attractive as possible to compensate with your bad credit, and once you get your loan approved, you better keep your expectations moderate. Borrowers with bad credit, who get their loans approved, should expect high equity and high-interest rates, as this is the lender’s way of securing themselves against the risk of you, being unable to pay back your debt.
Once you get approval, remember to spend your money wisely and strategically. Make sure your loan will help you bounce back up from your financial standing, and not further down. Follow us for more lifehacks and tips to further bolster your financial stability. Always remember that it’s better to be abundant than lacking.