With the recent shortage of houses on the market, it’s no surprise that many Brits have ended up with difficulties in purchasing property, especially those with bad credit scores. But what does this mean for those who are looking to purchase a home with bad credit? The following article will give you a rundown of what you can expect when trying to land a mortgage loan with a bad credit score.
I’ve Got Bad Credit, Can I Get a Mortgage?
Yes! Many people assume that you can’t get a mortgage if you have a low credit score or a bad credit history, but this isn’t the case. Although it can be a little trickier to secure a mortgage, lenders are providing an increasing number of options for people with bad credit. This means that there are a higher number of companies lending to people with bad credit and a wider variety of mortgage loans for bad credit.
How Much Can I Borrow?
One of the first questions you’ll ask when looking for a mortgage is, how much can I borrow? After all, you’ll want to ensure that your mortgage loan provides you with enough funds to buy a property that meets your needs, in your preferred area.
Generally, the amount you can borrow depends on your income and the deposit you’re able to put down. Some lenders will offer a 95% loan-to-value (LTV) mortgage and require a 5% deposit, for example.
If you need a mortgage loan for bad credit, however, this can reduce the amount that you’re eligible to borrow. In many instances, a lender will require a larger deposit from applicants with bad credit. Although it’s possible to obtain a 95% LTV mortgage with bad credit, it’s more common to be offered a lower LTV mortgage, such as 80% or 85%.
To find out how much you can borrow and what your monthly repayments are likely to be, why not use a mortgage calculator for bad credit? Although having bad credit can reduce the amount you’re able to borrow, there are no hard and fast rules. Different lenders have varying mortgage loans for bad credit, so it’s well worth getting specialist advice and finding the mortgage that best suits your situation. Contact us on 0800 802 1003
Will I Pay Higher Interest Rates?
Lenders tend to view people with bad credit as ‘higher risk’, which means they may charge higher interest rates. Depending on the exact type of mortgage loan you’re offered, this could mean making larger monthly repayments or taking the loan out over a longer period.
However, the number of people in debt is rising and it’s now not unusual for people to have a patchy credit history or a low credit score. As a result, mortgage companies are taking a more favourable view of these applicants and interest rates are becoming more competitive.
Even if you do need to pay a slightly higher interest rate due to your bad credit, you should still be able to secure a mortgage and proceed with the purchase of your new home.
Do Old Debts Matter?
Negative entries on your credit report, such as late or missed payments, generally remain on the report for seven years. However, they can have less of a negative impact the older they are. If you have a bad credit history from within the last seven years, making sure you pay your bills on time and in full is one way to improve your credit and prevent it from having a long-term impact on your finances.
Increase Your Chances of Getting a Mortgage with Bad Credit
Taking control of your finances before you apply for a mortgage can increase your chances of being approved for a loan. There are various ways you can do this, such as:
Checking Your Credit File
If incorrect amounts or debts are listed on your credit file, it could affect your credit score. Mistakes can be rectified but you’ll need to contact the credit referencing agency and/or the creditor to ensure that your credit file is accurate and up to date.
Add a Note of Correction
If there’s a particular reason that you fell into arrears, adding a ‘note of correction’ to your credit file can have a considerable impact on how future lenders view your application. If your credit rating declined due to reduced income following redundancy or ill health, for example, you can show that you didn’t accumulate debt due to unregulated spending, which helps to confirm that you’re a reliable borrower.
Repay Existing Debts
When you apply for a mortgage, the lender will want to see that you pay your existing bills and debts on time and in full. This will increase your credit score over time and help to persuade future lenders that you’re a reliable applicant.
Reduce Your Spending
You’ll need to show that the monthly repayments associated with a mortgage are affordable for you, so take the opportunity to review your spending habits. If necessary, adjust your household budget so that you have more available each month and ensure that the repayments you commit to are realistic. By reducing your spending now, you may also be able to increase the amount you’re able to save for a deposit on a property, which will make it easier for you to get a mortgage.
Finding the Best Mortgage for Bad Credit
There are a number of mortgage loans designed for people with bad credit, so don’t feel disheartened if you have a low credit score or a less-than-perfect credit history. With expert advice and assistance, you can determine what type of mortgage is best for you and find the lenders and financial products that offer the best value. Contact us on 0800 802 1003