When applying for a mortgage, one of your biggest questions might be getting approved for a mortgage with bad credit. People with bad credit scores are usually the ones on the bad side of the loan business. But there are some companies who know how to cut the risks involved and give such an opportunity.
When you are planning to buy a house, one of your dreams may be to purchase one without any stress or worries. You want to know that the entire mortgage process will run smoothly for you. Then, you want to get approved for a mortgage loan for any property. This article will guide you on some golden rules for getting approval for a mortgage with bad credit.
4 Golden Rules To Getting Approved For A Mortgage with Bad credit
Banks are very strict with their lending policies and very few get approved for mortgage loans for various reasons. This makes the chances of getting financed very slim especially if you are self-employed, or do not have a regular monthly income.
The good news is there are ways you can increase your chance of obtaining a home loan even if you don’t meet all requirements set out by banks, and here, we will share the 4 Golden Rules To Getting Approved For A Mortgage Loan with bad credit.
1. Solve Your Debt Problems First
Solving your debt problems first is one of the most important things you can do. You might have all the money in the world to purchase a new house, but if you have a lot of outstanding debts, lenders will not be able to see past this.
By solving your debt problems first, you ensure that you have a good credit score and report, which will make it easier for you to get approved for a mortgage loan.
For example, if you had a credit card with a credit limit of N1.5m and this had been maxed out at N1.3m, this would be considered by a mortgage lender as high risk. The reason is that if they approve your application and give you a mortgage loan of N2.5m, they are stuck in one day in the future you default on your monthly repayments.
This is because they only have the collateral from the N2.5m loan against which they can execute on to clear off their debts from your N1.3m card balance and interest accrued thereon.”
Before you apply for a mortgage loan, you need to address the problems that made you seek a loan in the first place.
You may want to find a job. You may want to start a side business. Regardless of why you’re trying to get a loan, those things are going to require time and money. Getting a mortgage loan requires you to be financially stable and it is also important to have a stable income flow, else, no lender would care to look at your application document twice.
2. Save Money For A Down Payment (20%)
The golden rule to getting approved for a mortgage loan in Nigeria is to save money for a down payment. A down payment is the amount of money you pay directly toward the purchase of your home. Typically, you will need to save enough to pay 20% of the purchase price of your home.
The remaining 80% will be financed by the mortgage lender. This means that you will have to have 20% of the purchase price, or 20% equity, in your home.
The reason for this is that when you decide to sell your home in the future (and everyone eventually does), and if the value of your home has gone up, then you would not want to end up owing more on your home than it is worth.
That is called “upside-down”, and if you are upside down on your home, then when you sell it, you will owe the bank the difference between what it sold for and what you still owe on it. You don’t want this to happen; therefore, make sure that when you apply for a mortgage loan in Nigeria, you save up enough for a down payment of at least 20%.
When you make a 20% down payment on a new property, you will also reduce the amount of interest that you pay on your new home loan of course. Therefore, it’s a common rule to get any mortgage loan approved in any Nigerian Primary Mortgage Institute (PMI).
3. Pick A Home That Is Within Your Means
Nigeria has very strict guidelines on home-buying loans. The guidelines are aimed at curtailing reckless borrowing, which is one of the reasons why Nigeria is not yet facing the kind of housing frenzy that other countries are experiencing.
However, for those who are willing to get approval letters from their banks, there is no reason why they should not get all the benefits of homeownership.
The first rule of thumb when you are looking to buy your dream house is to pick a home that is within your means. This means that you will be able to comfortably pay for it and still save up enough money for emergencies.
The lender assesses whether you can afford the monthly payment on the basis of your income and expenditure. As such, it is important that you submit a genuine and detailed bank statement as well as your salary slip.
You need to know exactly how much you can afford as a down payment and as a monthly mortgage payment. This is key for your lasting financial health. Spend some time going over the details so you have a clear idea of what you will be able to pay every month. Do not pick a home that is beyond your budget.
4. Get Home Buying Tips From Expert
When you buy a house or an apartment, you are going to have to deal with a lot of home-buying tips from experts. Everyone has something to say, and everyone seems to be an expert. So how do you know who to listen to?
The most useful thing the experts will tell you is what kind of house or apartment you can afford.
This is useful because it’s hard to figure out on your own sometimes. The general advice is that mortgage payments should take up no more than 50 percent of your income: that is, if you earn N100,000 a month, your monthly mortgage payment should be N50,000 or less.
A financial advisor can help you to get home-buying tips. A real estate agent will be able to tell you whether the price of a house is high or low in relation to others in the area. He or she will also be able to give you information about comparable houses that have recently been sold, which can help you decide how much you are willing to spend on your house.
The purchase of a home involves many decisions, including finding an affordable mortgage rate, understanding the terms of your mortgage, finding the right type of property, getting pre-approved for a mortgage, understanding the costs involved with purchasing a home, and determining if this is really what you want to do. An agent or an expert can assist you with that.
5. Make Sure You Have A Good Income And A Good Job History.
It is not enough to demonstrate that you can make monthly mortgage payments, it is also important to show that you have the ability and willingness to continue making those payments for years to come.
Getting approved for a mortgage loan is about more than your current income; the bank will want to see proof of your current and previous work history as well as your stability as a homeowner, such as an established financial history, job history, business industry, etc.
The bank will always want to know how long you have been working and how much money you make. They will also want to know the kind of work you do and if it is steady or not.
If you don’t make much money or if your income is unsteady, then the bank might not approve your loan application. It’s a common rule that needs to be followed exclusively.