Mortgages are usually taken out with loans that are secured on the house itself. That’s our main financial tool when it comes to this. However, unsecured loans can be used to the same end. It is a lot more difficult to fund a house with an unsecured loan than with a secured one, for reasons that we will outline in the remainder of this article. But to answer your question first: yes, it is possible to get a mortgage with unsecured loans.
The difficulty of getting them, though, is the other side of the coin.
Why Is It Hard to Get Unsecured Loans?
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Perfect Credit Score
Lenders require applicants for unsecured loans to have a pristine credit score. If you’re thinking to fund a new home with an unsecured loan, you can turn on your heels if your credit score is low. No lender will risk lending you money. A low score is synonymous with reckless financial behaviour. It simply means you’re no good with dollars and that you will eventually do something that will cost the lender a ton of money in legal fees and other expenditures should you not keep your end up.
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High Monthly Repayments
This is a consequence of the fact that unsecured loans often come with shorter terms than their secured kindred. You can still get one, but you have to prove the lender that your income is steady and large enough for you to afford the monthly repayments. Couple this with a mortgage and you’ll have to earn a higher-than-average income per month. If there’s clear evidence that you would bury yourself in debt sooner than later, you won’t be granted the loan, implicitly the mortgage you seek to obtain.
In some circumstances, you might get the lender to agree to tailor a repayment plan for you, but then again, you’ll have to jump through many other hoops to make that happen. Don’t get your hopes up on this, but try it nonetheless.
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No Collateral
This is by far the most important reason why it is so incredibly difficult to fund a house with unsecured loans. If you default on that mortgage, the lender won’t be able to confiscate your property, liquidise it and get his money back. He’ll have to sue you and waste a lot of money in court. And even then, you might still win the case thanks to the fact that there was no stipulation whatsoever that he could take possession of your house.
Lending you unsecured money is an extremely high risk for any lender. How can you solve this? Well, first of all, your credit score must be perfect. It tells the lender you’ve never defaulted and you’ve always made your repayments on time. Second of all, your income must be high, so you can afford each and every monthly repayment. If you fulfill these criteria, your chances of actually funding the mortgage with an unsecured loan become greater.
There might be other things you will have to bring to the table to even be considered, but that depends on the lender’s policy. If there’s no other way, you’ll have to eventually get a secured loan. Still better than not being able to get the mortgage.
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Higher Interest Rates
Charging a high interest rate is a lender’s way of getting some peace of mind. When you know you could end up paying some unbelievable sums of money in interest, you’ll do everything it takes to get rid of that debt.You won’t even think of missing as little as one monthly repayment, for fear you might be penalised. Think of it as a necessary evil. On one hand, you’re compelled to dissolve the debt. On the other hand, the lender knows you’re in this situation and you won’t be screwing things up.
The risk of defaulting is pretty much halved. Of course, higher interest rates are interconnected with high income, so you can see how crucial the amount of money you make on a monthly basis is when you’re trying to get unsecured loans.
Concluding Remarks
Unsecured loans can be used for a variety of purposes, but they are so difficult to get that the vast majority of people simply go with other options. While such a loan would be less risky for you, your lender has to assume a much grander risk. You can look for this type of loan on a variety of websites all throughout the Internet. One such potential provider is Bad Credit Loans. If you’re rejected by some lenders, try your luck out by visiting our website. Get in contact and who knows, maybe you’ll find a solution to your problems.
But firstly, make sure you’re eligible for an unsecured loan. Read this article again carefully and check out each point. If you’re in a good position, then apply for one.
