When debts climb to such a level that clearing them seems almost impossible, finding a source of funds to aid in the task becomes essential rather than preferable. Those facing financial difficulties will hardly have healthy credit to offer their lenders, but there are options. Taking out a homeowners loan for bad credit clearance purposes is one.
This loan option is available to homeowners who have a reliable source of income. It differs from personal loans in that since the applicant owns their own home, it is assumed repayments are easily afforded. And because home equity is usually used as collateral, large loan approval is extremely likely. In fact, sums as high as $250,000 are within reach.
But there are factors that everyone considering taking out a homeowners loan should consider. After all, with such large sums on offer, there are considerably larger risks to face. Ensuring it is the right option to choose is essential.
Choosing Between Secured and Unsecured Loans
When dealing with very large loans, there is a general understanding that lenders will expect collateral to be provided. But when seeking a homeowners loan for bad credit clearance, it is possible to get an unsecured loan too. There are pros and cons to both the unsecured and secured versions.
When considering a secured loan, the obvious advantage is that large loan approval is practically assured.
However, the chief risk is that your own home can be repossessed by the lender should repayments be missed. Even if your home is not taken in compensation, the late payment fees can be crippling.
When getting an unsecured homeowners loan, the chief advantage is that your home is not at risk. But the disadvantages include much higher interest rates, and a greater challenge in securing approval.
However, if the debt-to-income ratio of the borrower is healthy, and employment and income issues are satisfactory, then approval is still possible.
Security For Very Large Loans
It is always tempting to seek an unsecured homeowners loan for bad credit management when the sum at issue is relatively low. While $25,000 unsecured personal loans might be realistic for bad credit borrowers, homeowners may expect to secure as much as $75,000 – though their credit rating needs to be excellent.
The loans themselves range between $3,000 and $250,000, which make them a viable option for applicants of a variety of financial situations. However, when seeking large loan approval, the chances of getting a satisfactory decision without security are extremely low. After all, the risk is higher.
For larger homeowners loans, security needs to be offered to strengthen the application. This ultimately means that equity is offered in compensation, and for many people a $250,000 can be secured only if 100% equity is offered.
Terms To Keep In Mind
The typical terms that applicants should consider are not complete surprises, with the interest rate and the lifetime of the loan chief amongst them. Considering the interest rate being offered is par for the course with any loan application, but when applying for a homeowners loan for bad credit clearance purposes, the rate needs to be good to ensure the repayments are lower than those of the original debts.
Remember, the loan will be used to clear existing debts, so it can only be worthwhile if significant savings can be made to ease the monthly financial burden. Securing large loan approval is great news, but can be disastrous if it is too expensive.
A highly effective way to ensure repayments on the homeowner loan (even an unsecured one) are kept low is to seek a longer repayment term. Getting a 20-year loan rather than a 10-year loan can see the repayments fall by 50%.