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Tips to Increasing Your Approval Chances

6 May, 2015



There is little doubt that the better a credit history, the more likely a lender is to approve a mortgage application. The reason why is quite simple, with a proven record in meeting financial obligations suggesting the risk in lending to them is less. But does this mean applicants seeking home loans with bad credit are wasting their time?

Bad credit borrowers are not in as strong a situation when it comes to securing mortgage approval, but they have options. There are a growing number of lenders, especially online, that are willing to accept the risk, and while terms cannot be expected to be excellent, at least finances for a new home can be secured.

It may seem strange, but credit scores are not the most important factor in an application, with the more significant factors being job security, income and debt-to-income ratio. It is only when they feel confident about receiving home loan repayments that lenders will be willing to grant approval.

Here are 3 steps that can lead to stronger applications.

1. Understand Your Financial Strength

One of the biggest mistakes applicants make is to apply for financing without ever knowing their own financial position. Knowing your credit score, and how best to improve it, is a primary step to compiling a successful loan application, especially when seeking home loans with bad credit.

Get your hands on your credit report (available from the credit agencies) and read the details of your credit history. Reports are sometimes available for free from some lending institutions online, but these tend to give an overview rather than all of the details. Ordering directly from the agencies themselves means paying a fee.

But armed with the knowledge they contain, the chances of securing mortgage approval are increased. Remember too, the score provided may be wrong so get it reviewed. If corrected, then it can mean a lower interest is charged on the home loan.

2. Lower Debts and Include a Cosigner

Securing an affordable home loan with bad credit can be difficult, mainly due to the high interest rates charged. Typically, between 4% and 6% is charged, depending on the lender and the strength of the financial situation of the applicant. Bad credit scores tend to double those rates, making a huge difference in terms of affordability. But there are ways to lower the interest rate.

Including a cosigner usually sees the interest rate lowered to a normal level because the risk factor is all but removed. After all, a cosigner guarantees the repayments will be made on time, even when the borrower is unable to make them. Securing mortgage approval becomes more straightforward, though the cosigner must have an excellent credit history and a large enough income to make repayments if necessary.

Alternatively, lowering the level of existing debt is also effective. Taking the time to take out a consolidation loan to clear some (if not all) debts can drastically lower the monthly outgoings, freeing up extra funds to commit to the home loan repayments.

3. Consider A Pre-Approved Loan

Lastly, seeking a pre-approved home loan, with bad credit score or not, is good way to strengthen your position when it comes to negotiating prices with the property seller. Typically, approval takes between 60 days and 90 days, and the delay in awaiting approval results in the property being purchased by someone else.

By securing mortgage approval in advance, the borrower is able to buy the home they want immediately. It should be noted that a pre-approved home loan does not mean a lower interest rate is charged, but the speed in completing a home purchase can lead to discounts from the seller, thus saving on the overall costs.



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