Tuesday, 15 January 2013

When Home Loans With Bad Credit Fail, What Is the Best Alternative?


When Home Loans With Bad Credit Fail, What Is the Best Alternative?

Best Alternative of Home Loans
Image Credit



When Home Loans With Bad Credit Fail, What Is the Best Alternative?

When Home Loans With Bad Credit Fail, What Is the Best Alternative?
By Mark Venite

It is only to be expected that bad credit borrowers seeking to finance either the purchase of a new home or a mortgage restructuring program, would seek the most obvious route open to them. But getting home loans with bad credit is not easy, and lenders often turn such applicants down.

If that is the case, then what is the best alternative? Surprisingly, seeking a home equity loan, or even personal loan, with bad credit is sometimes a more fruitful course than the home loan option. But there are terms and conditions to each that make them suitable to specific borrowers more than others.

Still, as alternative home financing options, both can play a key role in helping to improve the chances of securing a home, or alleviating the pressure a current mortgage loan is creating. But what are the details of both options that make them suitable alternatives?

Home Equity Loan Option

Also known as private home equity loans, this option involves offering up a share of existing home equity as collateral in the loan deal. Private lenders are those certified lending firms that are independent of any banks or large lending institutions. But they can play a key role in securing a home loan with bad credit.

When seeking a personal loan with bad credit, equity can also be used, but it has to match the total value of the loan being sought. However, in this case, just 25% of the loan needs to be covered by the value of the equity. So, a $100,000 loan needs $25,000 in equity.

That makes the deal more affordable, as the level of risk is lowered so the interest rate charged falls. After all, just $75,000 of the loan is actually unsecured. So, as an alternative home financing option, this is a highly affordable one.

Personal Loan Option

It can be very difficult to secure a personal loan that is large enough to match the typically sized home loan, with bad credit usually forcing the loan limit to be set quite low. However, in the right circumstances, these loans can be as high as $50,000, and can be used to greatly improve the chances of a home loan approval.

A $50,000 fund can be extremely useful when trying to clear existing debts in an attempt to increase credit scores, lower interest rates and improve the debt-to-income ratio (which is arguably the most influential factor in any loan application). And getting a personal loan with bad credit is not very difficult with collateral provided. So, some equity or other property can be used.

However, as an alternative home financing option it is limited in what it can achieve. No home can be purchased for just $50,000, so it is only a stepping stone. Still, it is helpful at least, and can open the door to a larger loan approval.

Future Options

Of course, while getting a home loan with bad credit has its complications, it is worth noting that these alternatives can also be altered or bought out in the future too. When the impact on a credit score is good, and existing debts are falling, it makes terms on future loans much better.

Even when home equity is provided as collateral, the fact that equity with every mortgage payment means the potential for further loan options is growing all the time. And when getting a personal loan with bad credit, agreeing a longer term is the key to lowering monthly repayments and making the deal affordable.

What this all means is that alternative home financing ensures rejection from a traditional lender is not the end of the road.

Mark Venite is the author of this article and a successful financial advisor with 20 years of experience. He helps people to get approved for Bad Credit Personal Loan and Student Loans with Bad Credit. For more information about his services please visit him at AccessMyLoan.com

Article Source: http://EzineArticles.com/?expert=Mark_Venite
http://EzineArticles.com/?When-Home-Loans-With-Bad-Credit-Fail,-What-Is-the-Best-Alternative?&id=7460064