Those who have bad credit, no credit at all or even those who have gone through a bankruptcy process will find that homeownership can assure them approval for the money they need. The security that mortgages provide to the lender reduces the risk involved in lending to those with bad credit.
A mortgage loan consistently reduces the risk involved in a lending transaction for the lender by securing the loan with a property. The property used as collateral guarantees repayment of the loan in case the borrower fails to meet the monthly payments. Bad credit mortgage loans have been designed in the late years to meet the needs and the budgets of those who have a less than perfect credit but still need finance for purchasing a property.
Since most of the applicants do not fit the low-risk borrower profile that lenders prefer, most traditional lenders decline loans and bad credit, high risk borrowers have to resort to sub-prime lenders that are prepared to offer mortgage loans to those with a less than perfect credit score. In fact, bad credit, no credit and even past bankruptcies are not an obstacle for this kind of lenders.
There are a lot of different bad credit mortgage loans available to choose from and which is best for you will depend on your particular needs. Among others you can find: risk based pricing mortgages, 125 percent LTV mortgages and home equity loans. In the past no lender would approve a loan for those with bad credit and thus, applicants in such a situation had to go to sub prime lenders that charged exorbitant interest rates.
However, nowadays there are reputable lenders too willing to lend to those with bad credit that used to contact abusive sub-prime lenders. But as opposed to them, they charge only slightly higher interest rates and offer a lot of flexibility in terms of loan length and amount of the monthly installments.
Loan To Value
Loan to value (LTV) is the ratio between the loan amount and the value of the property used as collateral for the loan. When the LTV is higher than 100% it means that the lender is actually lending more money than the value of the property, thus incurring in a higher risk. There are loans with a LTV as high as 125% which offers an additional 25% over the value of the house. The exceeding amount is usually used for home improvements, paying for the legal expenses related to the home purchase, etc.
Homeowners paying high interest rates on credit card balances can sometimes reduce the amount of money they spend on interests by applying for a bad credit mortgage loan. Even those with a mortgage due on their home already can use the equity on their property to obtain a home equity loan with a low rate of interest and use the money to pay and cancel more expensive debt such as credit card balances, pay day loans, etc.
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