It is an accepted fact that the credit score an applicant has has a direct influence on the rate of interest traditional lenders charge. But with online lending, where credit scores are simply not included in the equation, this fact does not necessarily apply. Securing mortgage loans with bad credit no longer guarantees a high interest rate, but can instead come at lower rates.
There are plausible reasons why a combination of bad credit and low interest rates are possible, not least the fact that, in recent years, many honest people have been caught out by the economic downturn. It may still be impossible to get guaranteed approval, but lenders are more willing to trust the applicants who have a reliable source of income over their credit scores.
And since online lenders tend to specialize on loan packages designed for people with low credit scores, even their mortgage loans can be considered affordable by almost everyone.
Online Mortgage Lenders
For online lenders, competing with the long-established traditional lending institutions is a major challenge. But by publicizing the fact that credit scores bear no influence over the approval process, they have become more attractive to consumers. And with the rate of interest also kept low, getting a mortgage loan with bad credit scores does not mean a lifetime struggle to pay them.
The fact is that even offering guaranteed approval is not always enough to win the day for banks. If an online lender can charge a rate just 0.5% below a normal bank, the savings over the lifetime of the mortgage could be huge. Savings of just 0 per month on a 30-year mortgage could mean the borrower pays ,000 less - a significant sum.
We know that mortgage loans are probably the biggest single type of personal debt that most people will ever take on. So, the attraction that savings, especially of such size, has to the consumer is not difficult to understand. Nor is the fact that online lenders are known to offer the best deals.
Markers Worth Considering
However, the generosity of online lenders is not endless. When seeking mortgage loans with bad credit, there are some conditions that need to be taken into account.
Often a down payment is necessary. While getting a guaranteed approval might seem like a gift from heaven, knowing what is a good deal rests on knowing how much the down payment should be. Knowing what a credit score is gives a very accurate indication.
For example, if an applicant has a score that is below 585, then a down payment of at least 10% the value of the property is expected. If it is between 585 and 599, then a down payment of around 5% is expected.
But, if the score is 600 or above, a mortgage loan worth 100% the property value could be secured, though this does depend on the lender.
What About Bankruptcy?
For some, applying for mortgage loans with bad credit scores, bankruptcy is the key concern. But even in this regard, many online lenders have an open mind with the period of time since the ruling their only consideration.
It is generally expected that after 2 years, someone who had been declared bankrupt will have improved their financial situation significantly. While guaranteed approval is out of the question, applicants are considered on their merits.
After 3 years, the chances of getting a mortgage loan is improved on again. However, it is advised not to seek any mortgage within a period of 2 years after a bankruptcy ruling.