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Home Loan Challenge for People with Poor Credit

Friday, October 9, 2009 19:59

If you absolutely must move home and are looking to buy a new property, this can be quite challenging if you have poor credit. Lenders will think extremely carefully before lending money out if they think someone is a big risk.

In many ways a home loan is very different to a credit card or other types of loan. Firstly, it is usually for a much larger sum – many thousands compared with a few hundred for a credit card loan. Secondly, it is for a much longer time. Home loans can be anything up to twenty five years or more. Lenders need to consider these things very carefully.

However, conversely, a home loan is a secured loan whereas a credit card loan rarely is. If you miss payments then the roof over your head is at risk. So, 1) you are less likely to miss the payments if there is a chance that you will become homeless and 2) The lender can always sell your property and recover the loan in the case of any difficulties.
If you do have a bad credit history and need a home loan, there are ways to apply. Try to build up as much of a deposit as you can. The lower the loan to value ratio, the more favorably your loan will be considered. This is how much you are borrowing compared to the price of the property.

Try to make a joint application with a partner or family member who either has a good history, or who can secure your borrowing. Many first time buyers can afford to buy a property if their parents secure the loan against their own home.

You know you will not get the best rates possible because of your credit history, so never, ever go for a loan at this stage which ties you in to anything. Look for flexible loans which you can change as soon as your credit rating improves. It will improve. Have patience, it will take time, but it will get better.

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