How to Finance a Home Loan With Poor Credit Score?

If you are planning to buy or build a house of your own before reaching the golden years of your life, you have to get a financial loan, unless, of course, you are loaded with family money. And most people are not that fortunate, so they have to depend on money lenders to finance their dream home.

Multiple public and private sector organizations competing with each other to gain clients for a loan might give you the idea that it can’t be that difficult to bag a home loan. Think again. All the legit money lending bodies, be it an organization or individual, follow a standard process of evaluation based on credit score, and if you do not score high on that parameter, your loan appeals might fall on deaf ears. 

What is a Credit Score?

Your credit score is a number between 300 to 850, and this score helps lenders to judge your creditworthiness. In simple words, a credit score is an evaluation based on your entire credit history and financial habit, covering the number of open bank accounts, any debt, and repayment history, etc. The more the score, the more probability of loan payment. So when anyone applies for any kind of loan, lenders consider credit history and credit score to be sure of successful and timely repayment.

What To Do in case of Poor Credit Score

Now let us discuss the title topic of this article, which is how you can successfully finance a home loan with a poor credit score. Though most banks and money lending organizations find people with a poor credit score as high risk, it is not entirely impossible to tip the scale in your favour in case you do have a bad credit history.

  • Mortgage: In case you do have a house already but need funds to improve or work on it, you can apply for a loan against property by mortgaging your asset, i.e., your house in this case.
    • Leverage your income: If you have a steady job and income, you might get a positive result in your loan endeavour. The reason why loan appeals get rejected is primarily the risk associated with the repayment capability of the borrower. A steady and stable income with a secure source like a job or family estate helps lenders to gain trust in the borrower. So don’t hesitate to brag about your high paying job and awarded increments when you turn in your application for a loan.
    • Right the Wrong: It might not be too late to salvage your past mistakes. If you have defaulted on a loan or credit card payment before, try to approach the concerned institution and reach a settlement. You won’t go scot-free, but after paying a settlement amount, you might get a No Objection Certificate. The NOC will make your look more credible in the eyes of the financers.
    • Piggy Ride: Try to get a co-applicant or a guarantor who has a good credit score. This works best if your spouse has a better credit history. You can add them as a co-applicant and drag them down with you. Just kidding, get better interest rates on your loan. For better and for worse, right?
    • Volunteer: Offering a large downpayment will significantly reduce the fear of loss that is associated with a big-ticket item like a home loan. This will effectively reduce the overall amount of the loan, and as a result, the chances of getting the loan sanctioned will improve.
  • Cross-checking: Though it might be a long shot, do check your CIBIL score to rule out any discrepancies in your financial records. Requesting a credit report does not cost a thing, and it must be done regularly to monitor credit scores and eliminate any errors.
  • Get your Bank Involved: The best way to gain approval from sceptical financiers is to approach the bank where you have maintained credible financial transactions over the years. Banks might be inclined to help you with your loan if you have been a loyal client for a long time. Especially if you have a good account balance or Deposits with them, it is likely that they will offer you lucrative interest rates as well.

Final Words

Remember that even if you manage to get the loan, you will have to pay a very high interest rate, and all other charges associated with the process will be equally high. Please make note that if you falter in paying your EMIs on your approved loan, your credit history will take such a bad hit that it will become impossible for you to get any loan in the future. To be on the safe side, you can go for auto-debit and fund your account in advance. Work towards the goal of better creditworthiness. Take tangible steps to improve your credit score. Boost your debt to income ratio and pay off your outstanding debts.  Maintaining proper financial practice will go a long way.

Leave a Comment