Bad credit home loans are the loans specially designed by the financial institutions for the borrowers with not-so-good credit background. These loans are designed for borrowers who have already defaulted in some of their previous home loan payments.The credit impairments that constitute a bad credit history may include one, some or all of the following –
- Unpaid bills or tax
- Mortgage or loan arrears
- Discharged bankrupts
- Tax debts and unsecured debt consolidation(credit cards and personal loans)
- Company administrations
How can such defaulters access loans?
There are certain lenders known as sub prime or mortgage lenders who offer home loans even to such borrowers those have a bad credit history but with strings attached. As such, loans can be very risky to the financier so they are offered at a slightly higher rate of interest than the normal loans keeping in mind that it doesn’t hurt the borrower much. This type of home loan is offered usually with a co-borrower, a tad higher down payment and a bit more security. But most of the lenders now a days offer loans at almost the same interest rate in the highly competitive financial market, as for the regular borrowers with no impaired credit history.
Parameters for the bad credit home loans: –
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. This is important because the companies decide on the particular information, how much the loan should be priced at and what are the risks involved. Generally, the lenders price bad credit loans at a slightly higher rate of interest than the credit available in the market for non defaulters in the wake of risks associated. It is generally considered better if the loan default history is older, borrowed loans are cleared and the income source is active.
General rules for pricing bad credit loans are based on following parameters: –
- 1) The duration of credit default history
- 2) Whether the loan defaults are paid or unpaid till the moment
- 3) Nature and type of credit defaults
- 4) The loan to value ratio requested by the applicant
- 5) The employment standing or the source of income of the bad credit loan applicant.
Ways to assess bad credit loans with minimum hassle: –
- 1) The applicant should be updated about his credit history and he should apply for the new credit only after clearing his past liabilities.
- 2) 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.
- 3) 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.
- 4) He should be aware that the older the default history the better for him.
- 5) He should be updated about the nature of loan default history-Utility and Telco type defaults are considered less severe than financial defaults.
- 6) It is always advised that such defaulters seek advice from a financial expert before applying for a bad credit loan.
Presently most of the companies operating in the market provide bad credit home loans with much ease to the defaulters and at a very reasonable interest rate; seeing the growth in bad credit Mortgages market.