It would be a mistake to think that, when it comes to finances, what happened in the past stays in the past. For the most part, applying for a loan (especially a large one) prompts lenders to examine your credit history. But for bad credit home hunters there is room for optimism with the chances of getting a mortgage loan with bad credit quite good.
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Of course, it depends on meeting the criteria and conditions that mortgage providers set, but it is worth noting that mortgage approval despite poor credit history is not out of the question. However, there is no escaping the fact that the credit report will be examined, so there is still an impact on the terms of the mortgage agreement.
What this means is that reading your own credit report before preparing and submitting your mortgage loan application is very important. But why is this so? And can the mistakes of the past really have such a significant influence over your mortgage terms?
The Significance Of Credit Reports
It might seem there is nothing can be done about whatever caused a fall in your credit score in the past. After all, what is done is done. But there are two reasons why reading the details of your credit report is so useful when applying for a mortgage loan with bad credit.
The first is that it provides an opportunity to spot any errors or omissions there may be. The three credit agencies are Experian, Equifax, and TransUnion, and none are infallible. So, your score may be lower than it should be. If it is, order a review and have the score updated.
When hoping to get approval despite poor credit history, the score can be telling (though not decisive), but lenders are interested in the specifics of the report - 5 in particular: payment history; current debts; length of credit history; types of credit and finally, the number of loan or mortgage loan inquiries. The information is then weighted in the approval process - 35%, 30%, 15%, 10% and 10% respectively.
The Value Of Your Report
Does knowing this information really make any difference? The answer is a definite yes. For a start, it provides a clear picture about where the weaknesses of your application might lie, and being forewarned is hugely valuable when applying for a mortgage loan with bad credit.
In essence, it provides applicants with a chance of strengthen their application by identifying what areas need to be tended to. For example, if the amount of existing debt represents 30% of their decision, clearing one or two debts can improve your approval chances.
Indeed, securing mortgage approval despite poor credit history often comes down to the state of your debt-to-income ratio, and clearing some debts - perhaps through a consolidation loan - will see the likelihood of getting that mortgage loan improved.
Rebuilding Your Credit Report
Sometimes the state of your credit report can be so poor that the chances of getting approval for any large loan, never mind a mortgage loan, with bad credit are practically nil. But this is where the process of credit restoration should be adopted.
It will take some time, and some effort, but the overall advantages in the long term make it very worthwhile. There are two parts to the process, both of which have already been mentioned - reviewing your credit report; and clearing existing debts.
The idea is to steadily rebuild your history, improving your credit score and gradually climbing to a level where approval despite poor credit history is possible. After 6 months of disciplined financial management, the terms of your mortgage loan are improved, making it more affordable.