The plight of bad credit borrowers is that many lenders prefer to steer clear of the apparent risk they represent. So, it is no doubt refreshing to learn that securing a homeowner loan with bad credit is by no means out of the question. There are plenty of lenders that do not apply the same strict policies as traditional lenders.
It was always logical to assume that a bad credit borrower might not be able to secure large loan approval, but in recent years, more and more online lenders have expanded their loan product range. And with financial recovery the purpose of many loan applications, these lenders are more accommodating than ever.
Homeowners, of course, have an advantage over others in that they have home equity behind them. But increasingly, non-homeowners are being catered too, with tenants and leaseholders able to benefit from homeowner loans to strengthen their financial status. But what are the factors that applicants need to consider before applying?
How Advantageous is Home Equity?
Even if homeowners have home equity behind them, does it really make a different when applying for a homeowner loan with bad credit? In a word, yes! Equity is a huge bonus to anyone seeking a loan, because it is arguably the most reliable collateral that can be offered. So, securing a loan is more probable than it is for regular bad credit borrowers.
Home equity is the share of the home the applicant actually owns, and is not covered by the mortgage. So, if a home is worth $200,000, and the mortgage balance is $100,000, the equity owned is $100,000. The equity increases through market price improvements and with every mortgage payment made.
As far as lenders are concerned, having a share of a property is the most significant form of collateral because the value does not depreciate over time. So, when a bad credit borrower is seeking large loan approval, it is the ideal form of security to offer. A $100,000 homeowner loan is within reach if the equity is large enough.
When No Security Is Available
When a non-homeowner is in need of funds, there are options open to them too. In fact, even when they have little or no assets, it is still possible to get a homeowner loan with bad credit. However, there are some terms and conditions to accept that may not seem ideal.
The absence of any item from which the lender can take compensation makes the chances of getting large loan approval much smaller. The lender can only base approval on the income of the applicant, and the affordability of the loan repayments, and that narrows the field of options dramatically.
Bad credit borrowers tend to have earned their status because of repeated failures to make repayments on time, or because they have defaulted on a loan completely. With that in mind, a lender is cautious. So, to secure a homeowner loan, the applicant must have a very healthy debt-to-income ratio, with 40% of their excess income large enough to meet the repayments.
Finding A Loan Source
The good news is that the purpose of a loan has an influence, with some lenders more open to applications for homeowner loans with bad credit when the funds are to be used to address financial issues.
The best lenders are to be found online where, as experts in bad credit lending, the lowest interest rates and most flexible repayment structures are available. And since their key niche market is bad credit borrowers, large loan approval is more likely with them.