Saving money on a bad credit home loan requires a lot of work on your part. Nonetheless, it is doable, and the result is a mortgage payment and rate that you can afford. Due to the influx of mortgage lenders offering bad credit loans, getting approved for a mortgage has never been easier. Still, homebuyers can take certain steps to ensure the best rate possible.
Here are three surefire ways to save money on a bad credit home loan.
1. Reduce Housing Expense Ratio: Some first time homebuyers don't take into account other household expenses such as utilities, car payments, insurances, etc. In turn, they purchase homes that are too expensive, and the payments take a huge chuck of their monthly earnings. A good mortgage lender will consider their client's best interest. Before approving a loan, the borrower's income and debts are closely evaluated. If the borrower's total monthly payments, which include the mortgage, exceed 36% of their gross income, the lender may not approve the loan. The best way to afford the property would be to payoff debts and reduce monthly expenditures.
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2. Explain Pasts Credit Problems: In some cases, bad credit is often caused by extenuating or unforeseen occurrences such as family death, illness, loss of employment, etc. If your credit score was previously good, the mortgage lender may be willing to accept a written explanation that details the circumstances that resulted in damaged credit. Of course, to qualify for the loan, the situation must be corrected, and the borrower should be on the path toward credit recovery.
3. Bad Credit Applicants Have Choices: Some people with bad credit assume that getting a home loan is impossible. However, you do have options, and many lenders are ready to help. Several mortgage companies, banks, credit unions, and other financial institutions write sub prime loans. The key to getting a low rate on the loan is exploring all your options and exceeding the lenders minimum requirements.
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