Even if you have bad credit, there are ways to borrow money from financial institutions that do not have stringent rules and regulations as far as credit scores are concerned. Though your credit scores will still be checked, some financial institutions actually target people with low credit scores and will show more empathy to your financial situation.
The only caveat here is that sometimes, the interest rates will be higher than the typical bank loan. This is fine, most especially so if you are now in a good financial standing. You may have a bad credit history but if your current financial status shows that you have the capacity to pay, lenders will still take the risk to loan you money for your dream home.
Apply for Home Loans from Credit Unions
Credit unions are just like banks. They lend money on interest but they have lesser interests because they do not have as much overhead as the big banks. In addition, credit unions do not have comprehensive details about your credit history as those with big banks. Credit unions will usually use credit reports from third party vendors. Credit unions are non-profit organizations. This means that members who are in the same industry get together and loan money to other members. This is why the interests are low.
Apply for Home Loans from Peer to Peer Organizations
Peer to Peer or P2P is the fastest growing credit industry today and most of these are online. This means that you do not have to go to the organization in person. A P2P organization has an unlimited number of members, or lenders and borrowers. People from around the world will sign up and lend money to those who are in need. Most of the time, not one single person has to lend the entire amount that a borrower needs.
The peers, as they are called, pool their money together until a target amount is achieved. This money is loaned to you, the borrower, at interest rates that is competitive enough against banks. On average, P2P charges a 6.5% interest rate per year.
As a borrower, you need to sign up and provide details such as your name and income. You have to provide a reason for your loan and wait until several peers, or investors, to check your credit history. Even if you have a bad one, you will still qualify because the lenders make their personal decisions and will lend you money at their own risk, unlike banks that have high standards.
Apply for Home Loans from Sub-Prime Mortgage
People who have bad credit scores can apply for sub-prime home loan instead of the typical Prime Loans. The low credit score of the buyer will be the determining factor on how much interest should be paid. Typically, sub-prime mortgages have higher interest rates because there is a higher risk of you not paying your debt. The high interest rate will compensate for this risk.
Once you apply for a loan, the lenders will take a look at what is called risk-based pricing. As mentioned earlier, your bad credit score will significantly affect the interest rate. If your credits score is really bad, you should expect higher interest rates. Your payment delinquencies will be checked, along with debts that you defaulted.
The main problem with sub-prime loan is that you may pay high amounts if you are penalized for being late or if you decide to pay your entire loan earlier than the agreed end date, which is also called pre-payment penalty. You need to carefully ask your lender about these so you do not get surprised if you are charged penalties.