Prospective homebuyers not in the know, with a bad credit rating will be discouraged from applying for a home loan. They wrongly believe going through the application process would be a waste of time as they’ll be turned down.
Well don’t be put off – having a bad credit rating isn’t always due to a sinister act; it could be as innocent as not ever needing a loan or store credit and therefore you’ve not got a history of making regular payments.
Whatever your situation, there are strategies that can work any prospective buyer, even if it means you need to work on building up a healthy deposit first and work on your credit rating and when you’re ready you can get started on the financing part.
What Is A Secured Loan?
A loan backed by an asset to shield the lender from losing in the event of a default by the borrower is essentially what’s called a secured loan and offering up an asset for security makes it easier for lenders and borrowers with below par credit ratings.
Most mortgages (home loans) are secured against the asset (house) and sometimes cross secured against other property. Here’s some more detail on how it works.
How Secured Loans Work
As aforementioned with most lenders, especially mainstream banks, your property is the asset that’s the security for the loan.
The loan amount is a percentage of the property value e.g. if your home is valued at $600,000, the bank will offer you a loan up to particular percentage depending on the laws of the country. Some countries allow up to 95% as a loan however most countries are not requiring banks to offer a lot less – sometimes as low as 50 percent. It’s not just about the value there are other conditions you must meet but we’re just looking at how a subnormal credit rating can still work for you.
To fully understand your position and what’s available for your particular circumstance you can work with mortgage brokers in your country. In the UK for example there are lots of brokers but they’re not all the same. 1st qualified mortgages say they often work with home loan applicants who don’t quite fit the mould for various reasons, either they’ve not been in the country for years or their credit rating is poor.
Mortgage brokers are a good option as they look at different tier lenders, not just first tier banks, including private lenders.
Research private lenders
Private lenders cover a wide range of lenders. Crowdfunding, lawyers and investors are some of the better known lenders whom offer loans to homeowners.
The loans are usually smaller so they may be used to top up a mortgage loan if the borrower has a shortfall between what the bank will lend and what is required to purchase the property. Definitely do your homework and seek the advice of a professional like your accountant or lawyer before signing on the dotted line for all loans.
Get a co-signer
Using a co-signer, i.e. a guarantor is worth consideration too. In this case, you can use a family member who has a good borrowing record. However, you should only use this method if you are sure there is a backup plan for repayment in case you are unable to pay the loan on time.
Your credit rating is important for securing a home loan but it’s not the be all and end all and most importantly it can be improved! There are lenders empathetic to the people who are outside the mould and there are other options too like securing a guarantor for your home loan.
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