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Home Loan With Bad Credit: Steps to Strengthen Your Application

Not everyone looking to buy a home can boast an excellent credit history. For these bad credit borrowers, the challenge of securing the necessary financing is quite big. But there are lenders who are willing to accommodate applicants seeking home loans with bad credit.

Approval rests on the strength of the loan application, and in this regard, the chances of securing mortgage approval are heavily influenced by applicants themselves. Provide the right information to tick the boxes, and the green light is likely to be given.

What is more, taking some minor measures can greatly strengthen the home loan application overall. In fact, there are 3 measures in particular that bad credit applications should take before they submit the application.

1. Know Your Financial Status

It is important for applicants to know their financial standing before submitting any loan application. Taking time to read your own credit report from a credit agency gives an opportunity to spot the strengths and weaknesses of your application, something that is extremely useful when seeking home loans with bad credit.

The chief influence credit scores have it to dictate the interest rate to be charged on the mortgage. If the score is high, the interest is low; and if they are low, then the interest is high. Securing mortgage approval can depend on securing a low interest rate.

Borrowers who have a score of 700 or more are considered excellent, while anyone with less than 700 is included in the bad credit category. However, an applicant with 650 is in a stronger position that one with 500. A very low score will need to be improved before there can be any hope of getting a home loan.

2. Improve the Credit Score

There are two key ways in which credit scores can be improved, but both relate to actually clearing existing debts. With each debt fully repaid, the credit score is adjusted accordingly, so after 4 or 5 debts are cleared, it becomes more likely to get a home loan with bad credit.

The most expedient way to deal with debts is to take out a single consolidation loan to buy out the remaining balance of all the debts. The debt costs fall when there is only one loan to repay, freeing up extra cash in the process.

Of course, securing mortgage approval relies on more than scores, but since the total debt is restructured and spread over a longer period, the debt-to-income ratio is vastly improved too.

The other method is to take out a series of smaller loans, like payday loans, to pay off specific debts one by one. This is more costly, but the debts are cleared, with the payday loan paid off within 30 days also. So, the results are the same, with the home loan application strengthened.

3. Save A Down Payment

With affordability so essential when looking for a home loan with bad credit, making every effort to keep monthly mortgage payments low is important. A down payment helps to accomplish this by lowering the actual size of the required mortgage loan.

For example, a 10% down payment on a home worth $200,000, means a mortgage of $180,000 is needed. But making a larger down payment lowers the size of the home loan even more, improving affordability and increasing the chances of securing mortgage approval.

The only catch is the time that it takes to save perhaps 20% of the purchase price ($40,000). But lenders are often impressed by the level of financial discipline that went into saving such sums over relatively short periods – though it is also possible to secure a loan for the purpose too.

Use A Mortgage Calculator To Help Choose The Best Home Loan

When a person wishes to purchase a home and wants a home loan to help finance this project, the first thing he must do is to decide on which kind of home loan will best suit his needs. In order to do this, an indispensable tool at his disposal is the mortgage calculator. There are different types of home loans, each with its own interest rates depending on the period of the loan. A mortgage calculator will help a borrower choose the right home loan for his needs.

The mortgage calculator is available at all websites of lending institutions dealing with home loans, real estate websites etc. Use this calculator, which is free, and enter a set of assumptions like loan amount and period of the loan. The following are some figures that are inputted into the mortgage calculator.

• Mortgage amount
• Loan period
• Interest rate
• Origination fees
• Closing costs
• Discount points

Apart from these assumptions, the mortgage calculator will also require details on whether the loan will be a fixed or adjustable one.

The more the information the mortgage calculator requires, the more accurate will be the information provided. Make sure that the figures you provide are accurate so that the comparison can be done properly. A mortgage calculator can be used to compare fees, cost and monthly payments of 2 types of mortgages. Using this comparison calculator, you can determine how much your liability will be over the years and decide which type of home loan to go with. Some people may feel that a comparison calculator is limited since it allows you to compare only 2 mortgages at a time.

However, a person can easily use a process of elimination in his choice. If there are say around 4 types of mortgages for him to choose from, he can first compare two, then choose the best and compare it to the third, choose the best from this and compare it to the fourth. By this process, he can arrive at the best home loan for his requirement. When you wish to compare between adjustable and fixed rate mortgages, you need to enter figures like margin, lifetime interest cap on ARM and index. If you do not know what any of these values are, seek the help of the lender or a mortgage broker.

In the same way that you can compare two mortgages, you can use the mortgage calculator to help you calculate rates between two or more lenders and choose one who has the best terms. While using a comparison calculator can help a borrower secure good lending rates, there are other ways that he can secure a good home loan. Apart from getting a home loan at low rates, he can also use many energy efficient products in his home to help him save money.

Many state governments give incentives and tax cuts to those who install green technology systems in their home like solar panels. First, get a professional to inspect and evaluate your home for its energy efficiency and suggest ways to improve. Areas where energy can be saved are by using better home insulation, replacing old water heaters, heating, and cooling systems. The government offers federal tax credits to those who use energy efficient products.

Some of these products that can be installed at home and given tax credits include solar water heaters, insulated roofs, heating and cooling systems. If you feel the cost of installing these energy efficient products is too high, you can try and make use of low home loan rates and get a home equity. When a line of credit loan or home equity is taken to install energy efficient products, the borrower will get loans at extremely attractive rates that could be tax deductible too.

The Energy Star helps consumers easily identify ‘green’ appliances that can help him save on fuel costs, heating and cooling bills. The number of stars indicates how efficient the system is. Other innovative green appliances include geothermal heat pumps and tank-less water heaters. A geothermal pump works from underground to heat or cool a house depending on the season. Adopting new home construction methods to improve energy efficiency like roof insulation will help a homeowner cut costs over the years. So, get a good home loan rate, combine it with green technology, and save big.

A Mortgage Broker on Your Home Loans Will Save You Time and Money

A mortgage broker can be of considerable help to those trying to find the best home loans to suit their personal circumstances. Over the years, in fact over the most recent years, the demand for home loans has increased exponentially, and this has not only to do with any increase in birth rate 20 years ago.

It has more to do with increased availability of mortgages, and the latest world-wide recession is partially, but not only, connected with this availability of mortgages to people who were unable to afford them. Home mortgages are available for a number of funding scenarios and in spite of the sub-prime collapse, are still available to those that can afford them.

As potential buyers continue to educate themselves about the best home loans available to them, lending institutions also continue to offer competitive rates and terms. For those borrowers looking for a cheap mortgage it just takes a little research and perseverance to obtain just that.

For most of us, our home is our largest asset, and the most expensive single item we will ever buy. It is therefore more important than ever that we take the time to establish whether or not we are making good borrowing decisions. Quite often, it is imperative that we review offers from a number of mortgage lenders in order to ascertain the best possible loan for our individual situation. This, of course, is where a loan broker, sometimes called a mortgage broker, could be very helpful to us.

The loan broker can save us a great deal of hassle, and provide us with detailed information in a very short period of time. The educated mortgage broker can also answer many of the questions we might have concerning interest rates, terms, fees, and any other finance options available to us.

So before buying a home, there are a couple of things all buyers should consider. First, you should make a thorough research of the prevailing interest rates on the market. This allows you to have a good idea as to what a “competitive interest rate” might be in today’s marketplace. Just keep in mind that your credit score, loan to debt ratio, down payment funds, and other items will affect the interest rate you are able to obtain.

In addition, before applying for your home loan, you might want to have a basic idea as to how much money you are willing to borrow. This can be determined by using a mortgage calculator and entering various data such as purchase price of the home, interest rate, and term of the loan, to determine how much you can actually afford toward your mortgage each month. The last thing you want to do is pay more for a home than you can actually afford and then your home ends up being a nightmare, rather than the delight that it should be.

When you negotiate with a mortgage broker, you make it clear that you know the jargon, and have done your research in terms of prevailing interest rates and deals such as home loans for first-time buyers, and have reviewed your credit report. This provides the broker not only with a good feel for what you are looking, but also a hint that you also know what you are talking about: you are not be fooled with some spurious offer that is more to their benefit that to yours!

Buying a home should be an enjoyable time of your life, and if you know what you can and cannot afford to pay monthly, and how that translates into an affordable offer price for a property, then it will be so. There are many professionals who are very willing to assist you in this, and it is highly recommended that you consider them in order to save yourself a lot of time and trouble.

Mortgage and home loan professionals are on your side to help you through the twists and turns of the house-purchase labyrinth, and can help you save money while also keeping you right on the legal responsibilities of house purchase.

You will likely prefer to be pre-approved for your home loan in order that your house-hunting can proceed smoothly and enjoyably. Quite often, sellers will not accept offers on homes from buyers who have not been pre-approved. Being pre-approved simply means that your information has already been reviewed by the loan broker and they have made a determination as to the maximum amount of loan a mortgage lender would be willing to offer you.

You are not locked in to any specific loan terms or agreements at the time of the pre-approval. Its benefits are that you know what price range of home to look for and you can present yourself to the realtor and/or home owner as a “qualified” buyer. This could secure you the house of your dreams when there is a lot of competition, and you are the one that has been pre-approved.

Before visiting your loan broker and applying for your mortgage, make certain that you have the necessary documentation. This might include w-2, tax records, and any other income verification. Your credit report will be checked by the loan broker which will provide details of the payment history of existing debts, and any other loan applications you have recently made.

In essence, purchasing a home should be an exciting and fun time, and it is more likely to be if you use the services of a mortgage broker, rather than going straight to an individual bank or building society. Brokers are not bank managers, and are much easier to talk to. They make their money by offering mortgages, and you are therefore liable to get a good service, the best home loans, and walk out with a smile on your face after speaking to a broker than a bank manager!