Home Loans for Those With Bad Credit: Knowing the Reality From Fantasy

The myths surrounding home loans and mortgages make it seem that such loans are impossible to those with bad credit histories. But the existence of home loans for those with bad credit highlights the fact that this is not true.

Because of the size of a home loan, there is considerable importance placed on getting accurate information before committing to a home loan. After all, when a home worth $200,000 has been purchased, the debt can last for more than 30 years, making it a debt for life – almost.

The truth is that while bad credit ratings do have an influence on the rate of interest charged and even the size of the mortgage made available, rejection of an application is down to other issues. So, while there remains no such thing as guaranteed loan approval despite bad credit, there is at least an opportunity to improve the chances of getting approval when the realities are known.

Facts

The manner in which bad credit scores are calculated is quite complicated, but the principal is not. In its simplest terms, bad credit occurs because of poor money management, bad financial luck or unexpected and quite sudden financial pressures causing defaults, late payments and even bankruptcy. So, those eyeing home loans for those with poor credit can have widely varying stories.

The lowest score that a person can have is 300, with the highest 800, and it is between these values that the actual score resides. People with high or excellent credit ratings figure between 700 and 800, while those with very low credit ratings rank between 300 and 600. Those with scores between 600 and 700 may qualify for a home loan, but it depends on the lender.

Of course, the scores can also be improved. Every time a loan is repaid in full, regardless of its size, the credit score is adjusted favorably. It may never be enough to make guaranteed loan approval despite bad credit a reality, but the benefits relate to lower interest rates.

The Significance of Income

It hardly comes as a surprise that the monthly income of an applicant is a hugely influential aspect of any application for home loans for those with bad credit. It is far more influential than a credit score because it confirms whether or not repayments are possible. The credit score suggests the likelihood of whether the repayments will be made at all.

So, even if an applicant has a terrible credit score, if his income is big enough – most especially the excess income – then home loan approval is possible. In contrast, if an applicant with an excellent credit rating has too small a monthly income, then he will be rejected.

For self-employed applicants, the issue of income is not simply a case of showing a pay slip. The profitability of the business of the applicant needs to be examined. If the business is not profitable, then logically the applicant as no income, so the chances of a guaranteed loan approval despite bad credit is practically zero.

Improving Your Score

Improving your credit score can make a big difference in securing home loans for those with bad credit. The most effective way to do so is to take out a series of small loans, like payday loans, and repay them in full. With each debt cleared, the credit score increases and the terms of a home loan improves.

This may take some time to have the desired effect, of course, but after 6 or 8 months, a guaranteed loan approval despite bad credit will be closer than ever. And in that time, the search for the right lender should be ongoing, with the online lenders typically offering the best deals.

Getting a Home Loan – Some Simple Advice

Looking to acquire a property in Las Vegas? Need a loan or mortgage on your home? Then you should first know what the process is like in that city. Getting a mortgage approval can be quite harrowing at first, so you will need to know of a few things while you are going through the process.

o First is your credit score. Be aware that it will weigh more on your approval than ever before in Las Vegas. A Las Vegas home loan means that you have to know your score at most 45 days before securing a home loan. This will give time for any loan officer you are meeting with to make any corrections to any errors made.

o When it comes to banks, remember that they will want to see your total expenses which should amount to about 40% of your income in La Vegas. You will, however, be pleased to know that there are some home loan programs that will acknowledge future pay increases that you get from your workplace.

o When it comes to assets there are a few down payment assistance programs that can help you. Your loan officer should have an inventory of all the banks that have flexible asset requirements and also information on how these assets will be verified. So do not start moving your assets around until you get information from your loan officer on what certain banks will require from you. This is the best way to plan for your housing loan.

What a Home Buyer Needs to Know About PMI

If you put less than 20 percent down on a home mortgage, lenders often require you to have Private Mortgage Insurance (PMI). PMI protects the lender if a home buyer were to default on the loan.

PMI is extra insurance that lenders require from most home buyers who obtain loans that are more than 80 percent of their new home’s value or stated more clearly, a home buyer with less than a 20 percent down payment is required to pay PMI. The premium is usually paid on a monthly basis usually along with the mortgage payment and can range approximately between $250.00 to $1,200 per year.

Homebuyers may ask, “What is the benefit to them”? PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on their mortgage or loan. The greater benefit to the home buyer is that with this type of insurance, the home buyer can buy a home with as little as 3 percent to 5 percent down payment. This allows the buyer the opportunity to buy a home sooner rather than waiting years to accumulate a large down payment.

For example, the current national median for a home is $248,000.00, the 20 percent down payment required for such a home would be $49,600. With PMI, the home buyer (using the 5 percent down payment) would be required to have a down payment of $12,400.00 a difference of $37,200 dollars! This is obviously a huge difference and as mentioned before enables a home buyer to get into a home a lot sooner than he or she might have anticipated.

When the loan is paid down to 80 percent a homeowner can request the cancellation of PMI. Of course, in the past, the problem had been that the home buyer would be saddled with the responsibility of tracking their payment history and requesting cancellation. Many homeowners were not aware of the possibility and they would continue paying unnecessary premiums for several years.

A new law called The Homeowners Protection Act of 1998 – which became effective in 1999 – required lenders to provide certain disclosures concerning PMI and established rules for automatic termination and borrower cancellation of PMI on home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home. These protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI.

Other exceptions include: if your loan is a “high-risk” type of loan, and another exception is if you have not been current on your payments within the year prior to the time for termination or cancellation. A third exception is if you have other liens (A form of encumbrance which usually makes the property security for the payment of a debt i.e. judgments, unpaid taxes, mortgages, etc.) on your property. For these loans, your PMI may continue.

If a homeowner had not considered their PMI requirements when they purchased a home, a homeowner should ask their lender or mortgage servicer (a company that collects your payments) for more information about these requirements or conduct an internet search on the term “private mortgage insurance” for more additional in depth information.