These days, getting a loan for buying home or car has become easier than ever. If you have a good credit score and get a decent paycheck at the end of every month, there are numerous banks waiting in line to offer you a lucrative home loan or car loan deal. The interest rates are affordable, the payment tenure is flexible and the terms are generally easy.
When applying for any type of loan, it usually boils down to having a reputable credit score. But what if your credit score is not good or you are unemployed? Does it mean you do not get a home loan? Well, it’s not completely true.
Since there is a lot of stigma attached to bad credit and its negative repercussions that people who have a low score often do not even consider applying for a home loan. If you are looking for a way to secure a loan to buy a house for your family, there are more options available than you would think. While your bank may refuse to give you a home loan with bad credit score, there are many alternatives you can explore in order to get financial assistance.
Does bad credit score affect my loan application?
In the most basic sense, yes it does. Having a poor credit score means that you will not be eligible for easy financial assistance, and major banks and institutions will reject your loan application. But there are various lending companies which offer loans for unemployed and bad credit score applicants.
Such lending institutions have relaxed score requirements than banks, and you can contact them to know about the minimum credit score you need to have in order to get a home loan. While the banks reject applicants who have a score of 700 or lower (out of 850), most of the private lending companies consider applications which feature scores as low as 500. The score criteria can go even lower if you furnish a high down payment amount or have a decent figure in your savings account.
Depending upon your score, existing loans or credit, and repayment capacity, these lenders present their loan terms for you to decide. However, do not expect the same rate of interest or repayment terms as you would get from a bank. The interest rate charged by these private lenders will be a little higher compared to major institutions, and the tenure of payment will also not be stretched as much as banks do.
If you do not have any established source of income or do not have a job at all, you need to assure the lender that you will soon find a job or have plans to earn money. Without a repayment assurance, no lending institution will be willing to give you a loan for buying home.
However, many lenders do offer loans for unemployed since the house acts as lucrative collateral in such cases. You can find a number of companies offering loans online, and do preliminary research to approach a company that has the most suitable offerings for your needs.
How to increase my chances of getting a home loan with bad credit?
Since there is not much awareness about credit score and loan options, people with bad credit score often think that there is nothing they can do to strengthen their loan application when approaching a bank or a private lender. While a poor score often represents a weak financial portfolio, it is not always the case. In case you have a steady income and sufficient savings, you can easily contact any lender and convince them to give you a home loan.
If your financial position is not that stable, there still are some compensating factors that can help you land an acceptable loan offer from a private lender. Some ways you can strengthen your loan application even with poor credit score are: Know how to qualify for a home loan
Opt for a high down payment:
Simply put, bring more cash into the discussion. If you are willing and able to make a large down payment, it means that you need to borrow less money from the lender. This makes you more attractive to the lending institution, and you get a better deal. According to loan experts, being able to pay 10% of the total amount (or more) makes you a better investment for the lenders.
No outstanding debt:
Another thing that lenders are reluctant to entertain is the existing loan or debt of any type. If you can manage to pay off all the existing credit card bills and debts before you apply for a home loan, your application is more likely to be approved, and you may get better terms.
Large savings or cash reserves:
If despite poor credit score and job uncertainty, you have been slowly saving up to invest in your home, you might just get a loan anyway. By showing a decent level of cash reserve or savings, you assure the lender that you can pay back in easy installments without any worries.
Low debt to income ratio:
If you receive a decent paycheck every month and are looking for a loan of an amount according to your income capacity, it is more likely to be approved. When issuing loans, banks and private lenders look for a low debt to income ratio to make sure that you can repay in time and as per the terms of the loan.
However, this does not mean that you definitely need to have a high income or a good job to apply for a home loan with private lenders. Considering a strong application and repayment assurance, companies do not always hesitate in giving home loans for unemployed applicants.
Look for a reliable and flexible loan company online and discuss your home loan requirements with them. Make sure to read all the terms of lending before you agree to the loan and do not make any decision in haste. With a smart approach and the right application, you can easily get a loan to buy the home of your dreams.