The whole process of applying for a mortgage loan with bad credit lingering is strewn with uncertainty. At least, that is typically the feeling of the applicants themselves. But there is reason to have greater confidence.
The task of securing approval from lenders is made easier when three key aspects are addressed properly in advance. There are, after all, more important factors involved in the approval process than a credit score.
These three important aspects relate to the employment of the applicant, the saving of a large down payment and the commitment the mortgage loan applicant has shown to improving their situation.
1. Reliable Employment
Income is certainly important, but regardless of how much is earned, it is the reliability of the employment an applicant has that is of more interest to lenders. Being able to prove employment is especially important for those applying for mortgage loans with bad credit.
The fact is that securing approval from lenders rests in essence on the ability of prove that repayments will be made without a hitch, and that the lenders will get their money back. This is why applicants who have only started a new job benefit little, even if their income is quite good.
Lenders usually include in their criteria a minimum employment history of 6 months in the job, and sometimes a letter from employers, as proof that it is a long-term appointment. At best, this indicates the position is full-time, thereby making a commitment to repaying a mortgage loan viable.
2. Signs of Credit Score Improvement
The significance of a credit score may be limited, but there is a lot to say for applicants that are visibly making efforts to improve theirs. When seeking a mortgage loan with bad credit, providing evidence to suggest that the bad credit rating has or will be improved on, is highly valuable. This is because the lender understands that situations can change and the circumstances that contributed to a low score can be overcome.
All that is needed to improve the chances of securing approval from lenders is to take some proactive steps, like taking out a consolidating loan to better control existing debt and lower monthly repayments. Or perhaps to take out a series of small personal loans to repay quickly and improve the score directly.
However, even if these moves fail to make any real impact on a credit score, the fact that efforts are being made is a pleasing to lenders. It tells them that the applicant is prepared to commit to the mortgage loan and make a concerted effort not to miss repayments.
3. Provide a Large Down Payment
While taking proactive steps may be important, the most proactive move is clearly saving a large down payment. When it comes to people applying for a mortgage loan with bad credit, having $10,000 or $20,000 to hand to make a down payment is hugely impressive.
The reason is two-fold. Firstly, the larger the down payment the more significantly the required mortgage sum will be reduced. For example, a property worth $200,000 needs a loan of $180,000 if a 10% down payment is made. The risk is therefore lessened, so securing approval from lenders is more likely.
The other aspect is that the degree of financial discipline required to save a large sum, like $20,000, is exactly the type of discipline that those funding a mortgage loan want to see. That kind of money cannot be saved with a frivolous attitude, so lenders are confident they can trust the borrower.