Poor Credit Home Loans
If you have ever taken out a bank loan, of any kind, you know that credit history will be a large part of the approval process. The bank will gets a lot of insight as to the level of risk you present by looking at your credit report. They usually make a decision as to whether you are a solid applicant by looking at your employment history, income, and credit report.
While many people with poor credit can qualify for home loans, that qualification will depend a several factors. The following article will serve as a helpful guide if you want to know if you will be able to qualify for a loan.
Your chances of getting a poor credit home loan are going to depend primarily on these factors.
LOAN-TO-VALUE-RATIO The LTV ratio is calculated by looking at the value of the home against the amount you will need to borrow. People who have really poor credit can sometimes get home loans due to the fact the value of the home significantly exceeds the amount to be borrowed. If you want to borrow 60% of what the home is worth, it will be a lot easier for the bank to take the risk. DEBT-TO-INCOME-RATIO Needless to say, if you have a substantial income with very little debt, it will be easy for the bank to see you as a solid risk. You will have more than enough funds to pay off your loan. On the other hand, if you have a ton of debt with little income, you will obviously have a hard time making your payments. People like this will probably have a low credit score as well. CREDIT REPORT No bank loan officer in his right mind is going to loan money to someone who probably won’t make their payments. This means the bank will look at your credit report to determine whether or not paying your bills is important to you. A report showing late payments in the past will not help your loan approval, especially if those late payments were on a mortgage. So, if you have poor credit, you’re obviously going to have some issues on your credit report. While this will not generally disqualify you for a home loan, it can mean the loan will be more expensive.
Getting a home loan with poor credit can be frustrating for some people when they end up having to pay higher interest rates than their friends who happen to have good credit. However, if this wasn’t the case, lenders couldn’t possibly stay in business after loaning money to poor credit individuals. If you find yourself facing a higher interest loan, the best thing to do is to improve your credit and then refinance. Since this can be done basically any time, you want to start now at improving your credit and then watch for lower interest rates. Lately some people have been refinancing for as little as 4% interest.
If you still can’t qualify for home loans for poor credit, you will probably need to find a co-signer. You might be better off doing this anyway, as having a co-signer can help you get an interest rate that’s a lot more reasonable. Before sending you off to look for your loan, allow me to give you some quick and important advice: be sure to shop around and shop well. Also, compare rates before you close. If you take the time to look at a lot of mortgage shops, you’ll find a much better deal.