Home Loans for People with Bad Credit – Top Misconceptions Clarified

Borrowers with bad credit tend to think that it would be impossible for them to get a home loan, given the global recession; however, there are still quite a few options available for those who have their facts right. Some eye-opening tips:

Approach Lenders Specializing in Bad Credit Loans

It can be very easy to get turned down by large commercial banks for a home loan when you have bad credit as these institutions need to comply with very strict regulations and internal standards. It is usually far better to approach specialist lenders who are willing follow a more liberal lending policy despite poor credit records.

You Should Only Try For a Bad Credit Loan If You Are Already a Defaulter

It is true that most people applying for payday loans with bad credit are people who have already defaulted on loans or even filed for bankruptcy. However, such loans can be very useful to strategically protect your credit score from damage if you anticipate a cash crunch or are already experiencing financial problems. In such an event, you could take out a home loan for an extended period that allows you a lower monthly payment and the opportunity to get your finances back on track. Once things are under control, you can revert to a standard home loan at a more attractive rate of interest.

You Will Not Have To Live With a High Interest-Rate for a Long Time

If you are dismayed by the idea of getting a bad credit home loan that will have you carrying the burden of a higher interest rate for around 30 years or so, then you should take heart. If you can afford to make the monthly payments as required by a subprime home loan then you should seize the opportunity as you can always get back to a loan carrying lower interest rates when you have managed to demonstrate the commitment to paying back the loan on time without delaying or missing payments.

Lenders Do Not Consider All Defaults to Be the Same

There is a tendency by many borrowers to think that all defaults are thought to be the same by lenders, irrespective of the amounts involved, whether they have been paid, and how recent they are. Generally, you will find that lenders are more concerned about defaults involving large amounts, especially if they are still outstanding and are recent. This is because these indicate that the borrower is currently facing financial difficulties and their elevated risk profile will need to be factored in the home loan appraisal.


Bad credit need not necessarily be due to financial mismanagement. You could just have been in trouble due to unexpected life-changing events like a divorce, critical illness, loss of employment, etc. You need to be candid with prospective lenders about the reason for your bad credit and what steps you are taking to get back on track. Armed with the correct perspective, lenders will find it easier to extend a home loan at a reasonable rate of interest.

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