Getting Home Loans and Finance Options Even with Bad Credit

It’s not all the time that your finances are good. That’s the reason why a lot of people incur a bad credit score. But don’t lose hope because there are lots of ways to improve your credit score. Also, it is actually still possible to obtain home loans and other finance options even with bad credit.

Compensate for the Bad Credit

While you can still get approved for various loans, including a home loan, don’t expect it to be as easy as if you had good credit. This is just one of the impacts of having a bad credit history. There’s a reason why the credit score system is in place, after all.

However, you can compensate for the bed credit by proving to the financial institution that you are capable of paying the loan. This offsets the risk level, allowing the lending financial institution to give you a chance for a loan.

This often means paying a much bigger down payment for the loan or showing documents that you have paid up your previous delinquent loans. It is also a good idea to keep your debt-to-income ratio low. If you are looking to buy a property abroad, it may be worth seeking out an expert on overseas property finance, like Simon conn, to find out how things mortgages work in the country you are looking to buy in to make sure that it is something feasible for you at this moment in time, or whether you need to get your finances more in order first before you go ahead and buy.

Subprime Loans

More often than not, subprime loans have a higher interest rate than conventional loans. But with a bad credit score, a lot of people go for this type of loan. You can secure a home loan with a credit score of less than 600.

Take note, however, that subprime loans are often adjustable-rate mortgages. Many are often enticed by the lower initial promotional interest rate but don’t realize that the rate goes higher the longer the paying period goes. Moreover, negative amortization in these loans could make the balance grow higher, making it more difficult for you to pay the monthly amortization.

That’s why it is important to make careful considerations before taking these loans. You might be approved easily even with bad credit, but you could end up getting the house foreclosed if you are unable to pay up!

Government-Backed Loans

It might be a good idea to avoid subprime loans because of the risks. Instead, pick government-backed loans such as FHA loans and VA loans.

Insured by a U.S. Department of Housing and Urban Development division called the Federal Housing Administration, FHA loans are available even for those with bad credit.

Take note, however, that the lower the score, the higher the amount for down payment will be. For example, you need to pay a down payment of 3.5% if the score is 580 or higher but the down payment amount is increased to 10% if the score is lower than 580.

The U.S. Department of Veterans Affairs insures and regulates VA loans. It is a $0 down option and don’t require a minimum credit score. The catch is that it is not available for everybody. It is only for Veterans, Service Members and select military spouses. But if you fall under these categories, then you can try this option.

Should I Take a Loan with Bad Credit?

As shown above, you do have lots of options to still take a loan even with bad credit, but the question is, should you? You’ll end up losing a lot of money and your future home if you make a bad decision.

As a rule, don’t take a home loan if you fall under these situations:

• Your credit score is low because you have too many debts and struggle to pay bills
• Your only option is to take a loan with a very high-interest rate but you’re unsure if you can pay each monthly amortization
• If the mortgage payments will exceed 30% of your monthly income