Bad credit home loans or low doc home loans are the loans specially created by the financial institutions for the borrowers with adverse credit backdrop. Stains on the credit history could be due to numerous reasons. Such loans are designed for borrowers who have already defaulted in some of their previous home loan payments and are now carrying an impaired loan payment history. Bad credit borrowers are identified by the loan lenders as someone to whom lending can be a risky venture. While traditional banking institutions generally reject loan applications from such borrowers without a second thought, several financial institutions that specialize in the area, provide easy to grab offers to these very people!
Bad credit history includes: –
- Tax debts
- Unpaid bills
- Mortgage or loan arrears
- Discharged bankrupts
- Unsecured debt consolidation(credit cards and personal loans)
How to access bad credit or low doc loans?
There are many lenders in the market today who offer low doc loans at an attractive interest rate to the customers with deferred credit history. These are licensed lenders called sub prime lenders. It is generally believed that bad credit mortgages are offered at higher rates than the regular loans but not all the low doc loans have high interest rates. This type of home loan is offered usually with a co-borrower. These loans involve a tad higher interest rate, down payment and a bit more security. But most of the lenders, working in the highly competitive financial market of today offer these loans at almost the same interest rate, similar to the regular borrowers with no impaired credit history.
Bad credit home loans usually vary from case to case. They are assessed on the merit of each and every borrower depending on his credit history. On the basis of the derived information the lender decides the following things:
- How much the loan should be priced?
- What are the risks involved?
- Are the produced income sources authentic?
- Is the case of applicant justified?
Ways to assess bad credit loans with minimum hassle: –
- The applicant should be updated about his credit history and he should apply for the new credit only after clearing his past liabilities. It is always advisable to have a clean credit payment record before applying for the next loan.
- He should be aware that the older the default history the better for him.
- The applicant should be able to highlight his present source of income in front of the lenders as it adds to his chances of assessing new loans.
- It is always advised that such defaulter seek advice from a financial expert before applying for a bad credit loan.
- The applicant should request for the lower loan to value ratio as with lower loan to value ratio he needs to pay a lower rate of interest.
- He should be updated about the nature of loan default history-Utility and Telco type defaults are considered less severe than financial defaults.
Presently, most of the lenders operating in the market offer bad credit home loans at a very reasonable interest rate to the impaired creditors; considering the growth in low doc loan market. Considering the growth in the low doc home loans market many big players have entered the market in a big way making the interest rate and down payment highly competitive. Bad credit home loan is a booming industry that has fulfilled the loan needs of many borrowers who were ineligible earlier to borrow in the light of the impaired credit history.