Homeownership will build your wealth. But in the process of owning a home, many of us will not have a sufficient lump sum amount and eventually we apply for a mortgage to fulfil our dream of owning a home. But it is not guaranteed that your loan application will get approved.
In the UAE, Many of the mortgage loan applications are being rejected due to bad credit score or overleveraged credit profile.
Getting a bad credit mortgage is almost hopeless in today’s marketplace. There are over 30 lenders in UAE offering a variety of mortgage packages, They will first check your credit history including credit card debts and limits to evaluate your creditworthiness.
They only approve your loan application if you have a good enough credit score.
When are your credit scores too low to qualify for a mortgage?
Before approving a mortgage the banks will pull your credit score from Al Etihad Credit Bureau (AECB) Credit report. Where they look into your credit score determine your creditworthiness. Many banks consider the credit score above 580 to approve a loan. In the UAE, no banks will avoid your credit score and provide an unsecured loan.
Getting a home loan at less than 600 credit score will make you have to pay higher interests than the standard interest rate of a mortgage and could put borrowers at risk of default. So it is best to wait to buy a home until your credit scores improve rather paying higher interest rates on your mortgage.
How to Qualify for Mortgage with a Low Credit Score
Skyrocketing rent prices have pushed more people toward purchasing a home. People are feeling comfortable with higher interest rates, as it turns out to be a better deal to build equity at similar monthly prices. But what in the case to qualify for a bad credit mortgage. here are some tips to qualify with low credit scores.
Larger Down Payment
This will help you in many ways because the large down payment reduces the risk for the lender. An excellent figure is 20%, which allows you to avoid private mortgage insurance (PMI).
Even after making a large down payment, it is good to have ample cash reserves on hand. This will make lenders comfortable that you can absorb the unexpected, such as maintenance cost of any damaged furniture etc.
Be able to verify that you’ve paid your rent on time consistently for 12 to 24 months. This will make banks that you pay your rent instalments at any cost by where you, it will be exchanged into mortgage repayments.
Get a co-signer/co-borrower
A co-signer agrees to take legal responsibility for repaying the loan if you can’t. So asking some for a cosigner is a big deal. So have an honest conversation with your cosigner that how you’re in a need to take this loan.
Should you take out a mortgage with bad credit?
It is to be kept in mind that applying for a bad credit mortgage will let you fall in high risk of paying huge interest rates. Though you find out you are eligible for financing. There are some circumstances that you should probably decline to borrow.
If your mortgage payments will exceed around 30% of your monthly income.
It might be difficult for you to afford the payments, which could put you in risk as you need to pay other bills too which may cost you high. If you exceed all your payments more than 50 % as per central bank regulations you are not eligible for any new credit(this may ruin you at the time of emergency).
If you’re offered a mortgage only at a very high-interest rate.
As said that you are forced to pay higher monthly payments, and your loan will cost more over time. So it better to wait until your score improved.
If your credit scores are low because you have trouble paying bills or have a lot of debt.
In this situation, you are not recommended to take a mortgage loan. As this loan abides with long term payments and may bring a financial obligation in future.