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Bad Credit Mortgages – Buying a home if you have poor credit
For any kind of financial product, including mortgages, lenders will run a credit check on you. The better your record, the more likely you are to be approved for a mortgage loan. Many of us have a less than perfect credit rating – how can that affect our plans to buy a home?
Can I get a mortgage with bad credit?
It can be tricky to get a mortgage if you have a poor credit rating, but not impossible. Some lenders are fairly accommodating of bad credit – but it does depend on the cause of your poor credit history. Some credit issues are more serious than others.
What are the causes of bad credit?
Your credit record is there to tell financial providers a little about you and whether lending you money could be risky or not.
If you have always made your payments on time, stayed in credit with your bank and stuck to your credit card limits, your credit rating should be good.
Things that could give you a poor credit report include:
- Missing finance payments
- Going over your credit limit
- Missing one or more month’s payments on a mortgage or other loan (arrears)
- Defaulting – failing to pay back money by a deadline
- Debts against your home
- Taking out a payday loan
- Receiving a County Court Judgement (CCJ)
- Entering a Debt Management Plan
- Individual Voluntary Arrangements (IVA)
- Having goods repossessed
What else do lenders assess you on as a potential customer?
As well as your credit file, lenders will look at your income and spending, your age and how much deposit you have.
The purpose of this is to assess how easily you will manage the repayments on your mortgage and whether you’re likely to fall behind. Customers who seem reliable will get better rates.
Do any lenders specialise in mortgages for people with bad credit?
Every lender has their own specific criteria for their mortgages, and credit score is just one of their measures. Some specialist lenders will accept customers that have less than perfect credit ratings.
These mortgages will often have higher interest rates because the lender feels that they are taking a bigger risk. Larger deposits are a common requirement for bad credit mortgages too.
How much deposit will I need for a mortgage if I have Bad Credit?
Some mortgage products allow you to borrow with a deposit as little as 10%, but for a poor credit mortgage you might need 15-20%. The bigger your deposit, the less risky you seem to the lender, so they are more likely to accept you.
If a 15% deposit is out of your reach, you could explore the government’s Help to Buy schemes. These government initiatives aim to make it easier to get on the property ladder – although you will still need to find a mortgage lender.
Help to Buy is not open to anyone who has been declared bankrupt in the past six years.
How can I improve my chances of a mortgage?
Be aware that making multiple mortgage applications can make your credit score worse – especially if you are rejected.
There are various ways to improve your credit rating. Check that you are on the electoral roll, and stay at the same address for a year or two as frequent moves can make your credit score worse.
Take time to make sure you have all the documents you’ll need for a mortgage application. These include a valid passport and/or driving licence, recent bank statements and payslips, plus a utility bill for proof of address.
What about remortgaging with bad credit?
Remortgaging with bad credit is also possible – but again the cause of your credit problem is important. If you’re aiming to remortgage to save money but your credit score has decreased since you took out the mortgage, your plan could backfire.
If you think your credit rating has deteriorated, seek remortgage advice.
How can a Mortgage Broker help?
Home Financial Mortgage Brokers are professionals who specialise in the mortgage market. Our job is to help people find the most suitable options to buy a home.
When it comes to bad credit mortgages we have lots of helpful advice, and we can introduce you to specialist lenders only accessible through a broker. We’ll compare various mortgage deals, make sure you understand all the pros and cons and finally help you in applying for a mortgage.
As appointed representatives, we’re registered in England & Wales and authorised by the Financial Conduct Authority. Call our registered office today for an introductory, no-obligation chat.
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