What can I use a homeowner loan for?
While homeowner loans can be used for anything (except for gambling or illegal activity, of course), they tend to be used mostly for:
- debt consolidation (i.e., combining multiple debts into one)
- home improvements (such as a new bathroom or kitchen)
Who are homeowner loans suitable for?
You might be surprised to hear that homeowner loans are the same as secured loans.
As the name suggests, homeowner loans are suitable for homeowners only. This is because the loan uses your property as security. You also need to have equity in your property to be eligible for one of these loans.
Equity relates to the portion of your home that you own outright. You can estimate how much equity you have by deducting your outstanding mortgage balance from your current house value.
If you have paid off your mortgage in full, then a homeowner loan isn’t a suitable option for you. Instead, you might want to consider other forms of borrowing, such as a personal loan or remortgaging, for example.
Are homeowner loans easy to get?
Homeowner loans are generally considered to be easier to get than unsecured loans. This is because, from the lender’s perspective, your collateral offers them a safety net. So, you may be able to borrow larger sums for lower interest rates with a homeowner loan - even if you have a less-than-perfect credit score.
While secured lenders do consider common eligibility criteria, they may place less weight on certain elements of it, such as your credit history. This is because they have the added security of your property being attached to the loan. They know that if you don’t make your repayments, they can recoup the money they are owed by selling your property (as a last resort).
Secured lenders may focus more on factors such as:
- your affordability (whether you can cover your repayments)
- the value of your house
- your equity (i.e. how much of your house you own)
How to get a homeowner loan with bad credit
So, we know that it’s possible to get a homeowner loan with a less-than-perfect credit history, but how can you boost your chances of approval? Well, the best thing to do is to try and get your credit score to the best place it can be. While it can take a while to improve a damaged credit score, there are some simple steps you can follow to get the ball rolling.
1. Register on the electoral roll
When you apply for a homeowner loan, they check the electoral roll to see if you appear on there. If you have registered to vote, this can aid your application, as it helps the lender to verify your identity.
2. Make sure your report is up to date
Any inaccuracies or things on your report that don’t match your application can not only cause delays but also affect your chances of approval. Before you apply for a homeowner loan, check your credit report and make sure that all of the information is correct. If it isn’t, be sure to fix it before you apply, as this will help to boost your credit score and increase your chances of approval.
3. Set up direct debits
Paying your bills on time, every time, will help you to gradually build up your credit score. So, you don’t miss any payments or pay late, we recommend that you set up direct debits.
That way, the payments will automatically come out of your bank account each month, without you having to set yourself payment reminders. Just make sure there is enough money in your bank account to cover the bills, to avoid going overdrawn.
4. Be careful with your credit applications
When you apply for a loan, the lender will conduct a hard check on your credit report, which leaves behind a footprint. If you apply for lots of credit in a short space of time, it’ll show up on your credit report. This could give lenders the impression that you are desperate for credit. This can severely impact your chances of getting a loan.
Instead, try using an eligibility checker before you apply. These tools only perform a soft search on your credit report, meaning lenders won’t be able to see a footprint. It’ll show you the likelihood of acceptance for a loan, to help you fish out the deals your eligible for and prevent you from making multiple applications before getting approved.
Read on for more tips on how to improve your credit score.
What documents do I need for a homeowner loan?
Once you feel confident that your credit score is in the best place it can be, you can get ready to apply for a homeowner loan. Before you start your application, you’ll need to have these documents on hand:
- proof of address (such as a utility bill)
- proof of income (such as your wage slips)
- proof of identity (a valid passport or driving licence)
- bank statements (usually 3 months’ worth)
- your mortgage account number
- your home insurance document
How long does it take to get a homeowner loan?
It can take longer to get a homeowner loan than an unsecured loan because there tend to be large sums of money involved. As such, there is more paperwork involved and you normally have to speak to the lender over the phone as part of the application process.
Exactly how long it takes will depend on your lender and how thoroughly you fill out the application, but you can generally expect to wait three to six weeks from submitting your application to receiving the funds - if approved.
It’s a good idea to speak to a qualified mortgage adviser, to help with the application and ensure the process goes smoothly.
What should I consider before applying for a secured homeowner loan?
It’s a big commitment to get any kind of loan, especially if it’s secured to your home. So, it’s important to carefully consider whether it’s the right option for you before going ahead with your application.
Here are some questions to ask yourself when deciding whether to apply for a homeowner loan:
Can you afford the repayments?
It’s very important to make sure you can afford the loan repayments before you apply for credit. To work it out, create a comprehensive budget of your income and outgoings and check if you have enough left over to make the repayments each month.
If there’s any part of you that isn’t convinced you can afford it, then it isn’t worth it, particularly as you could end up putting your home at risk further down the line.
Is a homeowner loan the best option?
If you have a bad credit history, a homeowner loan may feel like the only option, but that isn’t the case. There are other options for those with bad credit, such as unsecured bad credit loans, credit cards or even remortgaging. Explore all the options and weigh up their pros and cons before diving in.
Have you considered the interest rates?
Lots of secured loans have variable interest rates, which means that there’s the possibility the interest on your secured homeowner loan could rise or fall. So, it’s important to consider this when working out what you can afford. You can use a loan calculator to help you to get an estimate.