August 24, 2023
If you want to raise some cash for home renovation, debt consolidation or purchasing additional property, homeowner loans may help you. To get it, you must be a homeowner or share good equity in the property. However, you must repay the money, which may lead to repossession.
Individuals applying for these loans are the ones who want more amounts without remortgaging or extending the mortgage term. Thus, increasing the term implies more interest costs and loan repayments. Loan prevents one from any such hassle.
However, before applying for one, you must know a few facts.
What should you know before applying for homeowner loans?
You must meet the criteria before getting a homeowner’s loan. For example, you can get up to £500,000 on a secured homeowner loan. You must pay the regular repayments with interest rates and payments. You can get variable and fixed interest rates depending on your circumstances.
Here are other things you must consider before applying for the loans:
1) Criteria to qualify
You must know the eligibility to get homeowner loans. The primary purpose is to protect the homeowner from losing the home. Thus, lenders undertake different credit and affordability checks to provide the right amount. Here are the criteria:
a) Credit score
Having a stable and good credit history helps you get favourable terms and interest rates. These are usually long-term loans, so it is essential to analyse whether the person can make payments until the loan term or not. It is where individuals with low credit histories suffer.
Individuals with bad credit histories may get rejected or get competitive loan terms. Moreover, the overall costs may vary if the borrower holds too many high-interest debts like mortgage, car finance, home renovation loans, etc.
It is another criterion that lenders mandate if you lack a sufficient credit score. It is ideal for the ones opting for unsecured homeowner finance. Having credible, regular and authentic income proof helps one bag affordable homeowner finance. It is an option for those needing urgent homeowner finance based on income. You must reveal income proof to get one.
Getting homeowner finance becomes challenging if you lack sound income and credit score. Lenders require some guarantee to provide the loan. You can provide a guarantor or someone you share a blood bond with. Moreover, a guarantor can be a homeowner or a non-homeowner. He needs to meet the payments on time.
However, getting a guarantor can be tricky when you have no one to look up to. You must be thinking-
Can I get finance without someone as a guarantee?
Yes, you can get one. Options like non-homeowner guarantor loans can help you here. These loans do not require you to have a guarantor. Instead, you can manage the loan individually according to your comfort. Lenders grant the flexibility to pay the repayments aligning with one’s finance.
2) Choose the right term- fixed or variable loan term
The market for homeowner loans stays unpredictable. It is because the interest rates you get largely depend on the country’s economy. Most individuals opt for variable interest rates to grab lower interest rates later. However, if the economy remains unchanged, you may not benefit much from variable rates. It may prove to be less profitable in this case.
Alternatively, fixed interest rates are ideal if you believe that interest rates may rise anytime. It is more comfortable for individuals with regular income. You only need to dedicate the same amount towards the loan. You can budget for that accordingly.
3) Secured and Unsecured homeowner finance
One shares the option to choose from either a secured loan or an unsecured one. However, whether you get it or not depends on the circumstances. One can get secured loans if one shares equity in the property he wants to borrow against.
However, individuals with low credit history find it challenging to qualify for secured loans. It is because secured loans are long-term loans for about (15-25 years). Lenders here require the person to be financially strong to make payments until the loan term. Bad credit borrowers with too many pending debts seem unreliable in timely payments.
So, what if I cannot qualify for secured homeowner loans?
If you do not possess the property to borrow against or find it a risky option, an unsecured loan for bad credit may help. You can use these loans instead of secured loans to meet your needs. However, the amount is lower than you get on secured loans. It is because of the low credit and finances of the borrower.
Additionally, the interest rates on these loans remain competitive. You can reduce the impact by making regular payments and avoiding penalties. It would also help you improve your credit score and qualify for better loan rates later.
4) Explore the best one before applying
After choosing the right one among the secured and unsecured ones, follow the below simple tips:
a. Shop around for the best product
Do not buy what you see first. Before applying, identify the loan costs like- APR, interest rates, and additional charges. Check how choosing a longer term as per your finances can impact the loan amount.
b. Prepare the documents required
If you need a loan, be ready with the documents like- ID, bank statements, collateral or asset details (secured loans), direct debit information, and income proof. If you have, you can provide documentation about the existing property value.
c. Get an offer
After providing the necessary documents and personal details, the lender analyses the amount you can afford. Affordability is the critical concept here. He will send you the agreement to analyse and provide your consent. If you find the terms acceptable, share the consent. You will get the loan amount credit within 1 business day.
5) Advantages and disadvantages of the loan
Every loan has its benefits and consequences. Thus, before applying for homeowner loans, analyse these.
It helps you borrow a larger amount for home improvement
The biggest risk with these loans is property re-possession
Efficient than remortgaging on a poor credit
Early repayment charges may impact the overall financial well-being.
Flexibility to choose variable and fixed interest rates
Loan fees can be higher than what you expect them to be. This adds up to your total loan amount.
Help increase property value affordably for individuals with stable finances and score
Individuals with low credit history may face trouble making loan payments
Thus, one must identify the pros and cons and align them with personal circumstances. Go for it if it does not hurt your minimal budget bracket.
6) Alternatives to homeowner loans
Apart from unsecured loans, remortgage could be one of the options. Explore the best loan terms to remortgage your loan profitably. Here are other alternatives:
i. Financing through a credit card
Remortgaging is a good option if you have a good time to pay back the loan. Alternatively, a credit card can help you meet the requirements.
ii. Bridging loans
Bridging loans are one of the best ways if you hold some cash but need more to finance the need. Here Bridging loans can be helpful. You can bridge the amount within 1-2 business days by providing collateral for a residential or commercial property.
Be careful about these aspects while applying for homeowner loans. Determine your purpose and the right mode to finance these loans. Moreover, your finances define the intensity at which you can manage the loan repayments carefully. If your credit and finances are low, unsecured loans can be one of the options.
Ellie Brown is a proud resident of the UK and love to be a content writer and editor for the last 9 years. Writing blogs and articles is her passion that one can explore at the top blogging platforms. Ellie holds a key position at Florafinance as the Senior Content Editor and Chief Loan Consultant, leading a team of more than 70 professionals. Ellie Brown covers the major aspects of the UK’s lending industry in her blogs and guides loan seekers who come at Florafinance to apply for a loan. She possesses the Post-Graduate degree in Finance and Investment.