Getting a mortgage with bad credit
Firing up that credit report and discovering a red mark against your name can knock your confidence when it comes to sourcing and securing a mortgage. If you’re purchasing your first home and are new to the processes it can feel daunting when lenders reject your applications over and over, however there are ways to obtain a mortgage with bad credit. Here is what you can do:
Clear any debts
Perhaps it is an old phone bill payment you missed and weren’t aware of, or something more serious such as a default on an old overdraft; bad credit comes in many shapes and forms and can set you back. To increase your chances of obtaining a mortgage with bad credit, first you must clear these debts – this could mean simply paying off any surprising costs you owe or taking on a debt solution.
Once these debts are settled, some lenders are likely to consider you, although bear in mind that most applications are processed via a computer before an actual human takes a look and each lender uses their own credit scoring system. You can learn more about how to get a mortage with bad credit here
Speak to a financial expert
A mortgage broker can help you to secure the best product for your situation and knows which lenders are more likely to accept an application from someone with poor credit. Before you work with a broker though, ensure you know how much they intend to charge or if they work on a commission only basis.
A broker will have a better idea of the market and know which lender to approach first to ensure a better chance of obtaining a mortgage product. Applying for mortgages requires a soft check on your credit score, this won’t necessarily change the number or ranking but other lenders may see that you have applied for several credit checks and could be wary.
Increase your deposit amount
Those with bad credit are less likely to be accepted for a 95% mortgage, as this poses more risk for lenders. However, upping the amount of deposit you want to put down can increase the likelihood of a lender considering your application. Offering a 10% or even a 20% deposit will ensure you are not rejected immediately and, if all debts are settled and you have shown that you can make repayments on credit, you could land yourself a decent deal.
Be prepared to pay higher than average interest
To cover their potential losses, many lenders will ask that those with poor credit pay a higher rate of interest on their mortgage. This could increase the costs of monthly repayments significantly but once you have rectified your credit score you can remortgage and secure a better deal at a later date. For those looking to get on the housing market quickly, this may be the only viable option. If this applies to you, ensure you have the means to make those higher monthly repayments.
At the time of writing, interest rates on mortgages are low and it’s a good idea to opt for a fixed rate when taking out a mortgage in 2017, as uncertainty around the UK’s financial climate means a rise could occur in the near future.
Time is your friend when it comes to obtaining a mortgage with bad credit – if all your debts have been settled. Some lenders will offer their lower rate to those who have defaults that have been cleared for three or more years, while others specialise in offering mortgages to those with poorer credit. It’s imperative that you do your research and find the best deal before signing any paperwork.