In the aggressively competitive loan industry, financial institutions, independent brokers, government lenders and banks are finding ways to tap all possible customer groups. The newly added group is the one with a poor credit history. In this context they are devising financial aids that are tailored to the customer requirements of such background. Auto loans, home loans and student loans are prominent examples of loans that are tailored according to the needs of borrowers. Federal Housing Finance Agency, which is a government agency, and Fannie Mae and Freddie Mac, which are government-backed corporations, play a very important role in the creation of tailored home loans (such that they do not require a credit check), home loans for single mothers, housing loans for people with bad credit or for first-time buyers. The first step towards availing a no credit check home loan is to evaluate your credit score or rating.
How to Do a Personal Credit Check
Credit rating is a well-discussed topic worldwide. In simple words, it is a numerical score used by a creditor to measure your credit worthiness. This score is given after evaluating your credit file which includes all your past loans and other financial commitments with your current earnings. Keeping this in mind you should diligently maintain an up-to-date credit file.
There are three main systems used to evaluate your credit rating; namely, Beacon, Empirica, and FICO (Fair Isaac Credit Organization) Score. Each of these imply as to who is issuing the score and who is going to use it. The FICO score is used by most lenders from across Canada and the United States to assess lending risk. This is the most readily available system provided by Equifax for an individual to check ratings for themselves.
Although such home loans are easily available, it is always advisable to check your credit worthiness to ensure the need. These loans have higher payments and short time span with the element of risk always there. Also, if you are a new borrower it will be more difficult for you to avail it. So, always be sure of the need and urgency.
Importance of No Credit Check Home Loans
In the wake of the recent economic recession which peaked in the year 2009, creation of home loans has become an extremely difficult business, with several lenders virtually refusing many loan applications. In 2011, American economist Robert Shiller declared “Home Price Double Dip Confirmed”. With this, the uncertainty in the market has increased, the lenders of home loans have realized the need for formation of newer and different type of loans. This home loan works in the same manner as the other home loans, but has one slight modification as there is no credit check for these loans.
There are many agencies (online) providing options to avail such a loan, but do not hurry into a deal. Go through several agencies and their terms and conditions, ask for free quotations and compare among the agencies. Finally, determine which agency offers maximum advantage with the lowest cost and no verification.
- The process of sanctioning a home loan starts with the application by the borrower to a lender. There are no specific requirements for which the person must qualify for before applying. In some cases, the lender will demand a particular domicile of a particular state.
- As there is no credit check required for the loan, the lender will conduct a background check.
- The background check involves the conformation of the applicant’s domicile, employment status, and his family background.
- Some lenders also take further measures such as getting into contact with the applicant’s bank or the applicant’s employer.
- The lender is also bound to take into consideration the number of people who are dependent on the applicant’s income.
- It must be noted that the applicant’s credit history is reviewed, to certain whether the applicant has filed for bankruptcy in the past or not.
After the loan is sanctioned, and the property is purchased, the applicant is supposed to pledge the purchased real estate or home to the lender. This makes the loan a mortgage loan and the collateral is referred to as the mortgage. The applicant then has to make a series of installments over a specified period to the lender. The simplest formula that is applied to derive the interest of the no credit home loans, goes as follows:
Interest Amount = (Principal Amount × Current Rate of Interest (in percentage) × Number of Years) / 100
These home loans have a rate of interest which is not predetermined and that is calculated by the lender on the basis of other factors. The rate of interest for the normal loans is usually the regular rate that is used in the credit market. But in this case, the rate of interest is calculated on the basis of income of the borrower, current rate of interest, and also other kind of debts and debt consolidations that have been already borrowed by the applicant. In addition to that, some lenders also take into consideration the projection of the market value of the purchased property. This kind of home loan financing usually has a high amount of interest charge that is spanned over a short number of years of installments. These installments can actually be used as a way to improve the credit score and credit rating, as every timely installment improves the credit score. Even after availing a bad credit home loan keep working towards improving your credit score. The other reason to improve your score is to avail refinance of your existing loan repayment. With a better credit history the new loan you avail will have a longer duration for repayment and lower rate of interest. The money thus saved can be used for other investments. Therefore, you should not only utilize the facilities provided, but also make the most of it to improve your credit report.
Variants of the Loan
There are some really helpful variants of these home loans. The debt consolidation home loans with no credit check are the loans that are used to consolidate the home loans and related loans such as home loans and home improvement loans. Sometimes such variants that are also used as a debt consolidation have a low rate of interest and span over a considerable number of years. Another very prominent example of such a loan is the home loan without credit check that is provided after bankruptcy. The rate of interest for such a loan is again rather high.
Home loans that do not require a credit check are instrumental in helping people to purchase homes and also improve their credit scores. The key to successfully borrowing and repaying the loan is to make timely payments without fail.