Friday, November 23, 2012

Home Loans With Bad Credit: Alternative Options For Better Approval Chances

Getting the funds needed to buy a home is not easy for those of use with bad credit histories. Traditional mortgage providers either avoid the risk, or charge high interest rates in compensation for accepting it, making such deals very expensive. But there are other options to consider when seeking a home loan with bad credit.

The decision to buy a home is a major one, not just because of the amount of money involved but because it requires a lifetime commitment to repay the debt. Carefully considering the options, and the ramifications of each, is essential. Securing mortgage approval with poor terms can prove a very costly investment.

But what are the alternative home loan options available to bad credit borrowers? Well, for those of us in very poor financial situations, the best two options are securing federal funded mortgages or privately funded mortgages.

Federal Funded Mortgages

Perhaps the biggest help to bad credit borrowers in their search for home purchase funding has been the Federal Housing Administration (FHA). Set up over 80 years ago, its purpose has been to ensure applicants for home loans with bad credit still have a chance to secure approval.

The mortgages available through the FHA program are structured to allow for a greater range of incomes, and are very useful to first-time home buyers. Securing mortgage approval is made easier because, on the back of FHA subsidization, mortgage providers ignore the credit history of the applicant.

This effectively means that income is the sole basis of approval, so all an applicant needs to do is prove that the home loan is affordable. Qualifying for FHA subsidizing is based on their assessment of credit status, income and circumstance.

Private Lender Mortgages

The alternative to an FHA mortgage is a private lender mortgage, which is provided by individuals willing to effectively bankroll the purchase of an FHA property. Securing a home loan with bad credit is simplified because it is easier to strike a deal with an individual than with a financial institution with a strict lending policy.

These lenders are generally to be found online, and they are willing to work on agreeing a deal around your own circumstances. Perhaps the mortgage term will be longer, or a mixture of repayment schedules and terms can be agreed. This greater flexibility makes securing mortgage approval much more likely.

Of course, if negotiating a home loan with a private lender, it is essential that their reputations are checked out. Never try to deal with an unknown lender online, as the pitfalls can be too severe. So, check out either the Better Business Bureau or Verify1st websites to make sure they are trustworthy.

Other Options

Of course, there are other options to securing a home loan with bad credit than the two mentioned above. The most plausible source is an independent mortgage broker. These are not mortgage providers, but have a network of contacts that they use to find the best mortgage option on your behalf.

The major plus of this option is that mortgage providers are contacted, and those interested in lending the funds will make an offer. So, effectively securing mortgage approval is guaranteed. But, the terms offered are usually quite poor with high interest rates.

This is why it should be the last port of call for anyone seeking a home loan. A good broker will be able to find at least competitive terms, but it is fact that approval is so certain that is the major attraction.

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