What Are Bad Credit Home Loans?
Bad Credit Home Loans are specifically tailored for those with a history of financial difficulties. These loan schemes will generally have stricter lending criteria and higher interest rates, but depending on your individual circumstances could still be a viable option to purchase the home of your dreams.
Whether you have missed payments on previous bills, are new to credit, or have been recently discharged from bankruptcy, getting approval for an ordinary home loan might not be easy. The good news is that there are many lenders willing to offer bad credit home loans as long as you meet certain criteria.
Even if you fall outside acceptability, there are other options such stay with family or friends for a little while longer until your credit has had time to recover. If you’re reading this it’s likely because you need help in understanding which type of loan would work best for your needs.
In this article, we’ll cover exactly what makes a home loan ‘bad’ and how that relates to you and your situation.
What Makes A Home Loan Bad?
In short, nothing. There’s no such thing as a ‘bad’ loan. The term ‘bad credit’ simply refers to an applicant who falls outside the ‘acceptable’ parameters for the majority of home loan products.
The term ‘bad credit is a blanket statement generally applied to individuals with a plethora of financial issues such as unstable employment, a high debt-to-income ratio, or a history of late or missed payments.
A home loan is one of the most important financial decisions you’ll ever make in your lifetime. It can be a great investment, but only if you’re aware of your options and have the right knowledge to make an informed decision.
If you pick the wrong home loan, there are serious consequences such as paying more interest, higher monthly payments or having difficulty refinancing.
Types Of Bad Credit Loans
Bad credit home loans can come in many different forms. The trick is finding the one that best fits your individual needs and circumstances.
The first step towards getting approved for a bad credit home loan is to understand the different types. The most common types of bad credit home loans are:
What Are The Requirements For A Bad Credit Loan?
The requirements for a bad credit loan will vary depending on the specific lender, the type of loan program, your Credit Score, and your debt-to-income ratio.
Bad credit home loans are typically reserved for those with a Credit Score below 640, but some programs will go as low as 500. The lower your score, the higher the interest rate and the stricter the repayment terms will be.
Pros And Cons Of Bad Credit Home Loans
Pros
- Bad credit home loans have higher interest rates, but because the loan is unsecured you have less to worry about if you miss a payment or are unable to pay it off in a timely manner.
- Bad credit home loans are generally easier to get than a standard loan, especially for individuals with a very low credit score.
Cons
- The interest rates on bad credit home loans are higher than standard loans, which means you’ll be paying more in the long run.
- You’ll also have to jump through more hoops to get approved for a bad credit home loan, which could take weeks or even months. If you have less than perfect credit and no savings, getting a bad credit home loan could be nearly impossible.
How To Find The Best Bad Credit Loan For You?
First, understand that all loans are not created equal. You could be qualified for a great loan, but if you pick the wrong one it could end up costing you dearly in the long run. Therefore, it’s critical to do your research and understand your options.
- Understand your Credit Score The first thing you need to do is understand your Credit Score. Your Credit Score is a number based on your entire financial history. There are several different credit scoring models in the United States, but they all follow the same general principles.
- Shop around and do your research Once you know what type of loan works best for your situation, you want to shop around. Not all lenders are created equal. Some are far more stringent than others. Furthermore, one lender might be willing to offer you a better deal than another.
- Verify that the information is correct Another very important step is verifying that the information on your credit report is correct. Having inaccurate information on your credit report could make your situation much more difficult. Ensuring that the information listed is correct will help you get approved for the loan that best suits your needs.
- Apply for a few different loans Once you’ve verified that your credit report is correct and you’ve done your research, you want to apply for a few different loans. Doing so will help you determine which ones would work best for your situation.
Conclusion
Bad credit home loans can be a great option for those with a history of financial difficulties. However, it’s important to understand what lenders look for when evaluating these types of applications.
Bad credit home loans are generally unsecured, meaning that repayment is based on your ability to repay rather than your ability to repay through collateral. That’s why it’s so important to understand the requirements for a bad credit loan so you can get the help you need to get approved.
