Saturday, August 18, 2012

Home Loans With Bad Credit: No Money Down Options

The world of home buying has changed dramatically in recent decades, most especially as a result of the growth of the Internet. The lending industry used to be tight, with all lenders offering pretty much the same deal. But the massive increase in competition means that it is now more likely to get a home loan with bad credit than ever before.

The doors of opportunity are open to practically everyone, and with a wider range of loan deals available than ever before, even getting a mortgage approval without a down payment has become possible.

Of course, that does not mean that securing funding to buy a home has become easy. There are still criteria that must be met before lenders will even entertain the idea of granting a home loan, never mind offer one with no required money down.

The Role of the Down Payment

The down payment has been a very important part of the home-buying process. It has two roles: firstly, it seals the deal that is struck between the buyer and the real estate agent; and secondly, it reduces the size of the required mortgage. This was a very handy factor when seeking a home loan with bad credit.

Normally, a down payment of about 10% is expected, but it depends on the mortgage provider and whether they are offering a 90% mortgage. Some might only offer 80%, making it necessary to raise a down payment of 20%. If the property is worth 0,000, then that translates to a sum of ,000.

Securing mortgage approval without a down payment was always a difficult thing, since by granting the complete mortgage, the lender was effectively accepting all of the risk. Also, the borrower has no equity to fall back on, leaving them vulnerable. A 100% home loan has always been a risky option.

Advantages of No Money Down

Usually, buying a home requires a considerable amount of preplanning and saving so that a sizable down payment can be made to secure the property wanted. The idea is that the likelihood of getting a home loan with bad credit is increased when the size of the required mortgage is lower.

But by removing the need to make a down payment, the home buyer needs to secure a loan worth 100% of the purchase price. This pushes the debt up, the interest up and the overall costs up. However, getting approval without a down payment means there is no longer a dependency on saving a large cash sum in advance of an application.

The upshot is that the application for a home loan can be submitted perhaps years earlier, and all of the available excess income can be used to repay the mortgage rather than putting a share away to save the down payment.

Terms to Look Out For

Finding excellent terms when applying for a home loan with bad credit can be tricky, but when no down payment is being offered, then it becomes very difficult. This is because, by accepting the full risk, the mortgage provider raises the interest rate to cover any potential losses. With a 0,000 property, this can mean repayments of as high as 0 per month over 30 years.

Approval without a down payment will result in the costs being higher but if the term of the loan is extended to as long as possible, then the monthly repayments can be kept very low. And while the interest paid over the lifetime of the home loan will be very high, the home is at least affordable, which can make it all worthwhile.

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