Homeownership involves an initial investment in the form of a substantial down fee - as well as an ongoing investment commitment. For a lot of people this ongoing commitment is a full 360 months long – a very long time!
For the first few years of making your mortgage payment, almost all the fees go into paying the interest on your loan - while very little goes toward paying down your principal balance. On the other hand, at some point you find that you have made some substantial progress toward paying down your loan principal. At that point, you have built up some equity in your home.
Home equity is defined simply as the difference between your home's value and the amount you currently owe on your mortgage loan. As a homeowner with equity, you may be in a place to borrow a loan against that equity, using the resulting cash On the other hand you see fit.
On the other hand, if you have a bad credit score, by approaching most lenders you may be facing somewhat of a challenge in terms of what you can qualify for - if you can qualify at all. If you are interested in obtaining bad credit equity loan approval, here are 5 tips to consider for loan approval:
1. Fully understand what it takes to qualify for an equity loan
As mentioned earlier, you will need to have some equity in your home in order to take out this loan. To know whether you do, just deduct your current mortgage's outstanding balance from your home's current market value. Next, you will need to know how much you can borrow from the typical lender.
2. Determine your LTV ration to find out how much you can likely borrow
Most mortgage lenders prefer to extend home equity loans to people with a loan-to-value (LTV) ratio of no more than 80%.
To know your would-be LTV, start by finding out how much you owe on your existing mortgage balance. Let's call that X. Now, estimate the present value of your home at today’s market price. Let's call that V.
For an 80% home to value loan, here is how to calculate how much you can borrow:
Maximum you can borrow in home equity loan = (0.8 of V) - X
Meanwhile, for a 70% LTV loan, calculate it this way:
Maximum you can borrow in home equity loan = (0.7 of V) - X
As long as the Value you get is greater than zero, you can borrow that much with this type of loan. In case you need to borrow more than an 80% LTV loan allows, don't panic. Certain banks are willing to extend 100% or even 125% LTV loans.
3. Know your credit report
By now, you know how much is feasible for you to borrow. It is time to become familiar with your credit report. Go ahead and request your latest report from Experian, TransUnion and Equifax. Find out what your exact credit score is on each report and also go through each and take notes on any outstanding item. Be prepared to explain these to a would-be lender.
4. Get your employment documentation ready
As you start applying for loans, make sure you do not look for just any given home loan lender. Rather, approach bad credit equity loan lenders, in particular. These lenders are specialists in looking at your credit score as well as a number of other factors - including those on your credit reports to determine whether you represent a creditworthy borrower such as your employment history. Prepare documentation showing your current and/or recent employment status details in case they ask you.
5. Expand your field of choices when putting in
As you seek out bad credit equity lenders, apply to at least 4-6 lenders. Why? Because, while you be tempted to accept the first loan offer you get, it is a good idea to follow through with applying to other lenders. It may even be that the last one you apply to will be the one that offers you the best interest rate.
Consider these 5 tips for faster loan approval when looking for a bad credit equity loan.
No comments:
Post a Comment