If you’re looking to get onto the property ladder but find yourself with an imperfect credit history then obtaining a mortgage can be a real struggle.  Searching for a suitable lender can be a tedious task and with what seems like endless rejection, that’s where we come in.  Here at Tailored Money, we’ve been in the industry long enough to know that previous financial issues don’t always reflect the future so we take the time to understand your situation on an individual basis and advise you on the best course of action to get you into the housing market.  Today on the blog we offer our best advice on how to get a mortgage with bad credit.

Firstly, there is no such thing as a bad credit mortgage. You may have also heard terms such as sub-prime mortgages or adverse credit mortgages but essentially they operate in the exact same manner as a conventional mortgage.  If you have bad credit then it’s likely that you will be rejected by mainstream lenders, fortunately though there are specialists out there willing to help.

What constitutes ‘bad credit’?

Bad credit is a description of a person or a company’s predicted inability to repay a debt on time and in full. It is based on the individual or company’s past history of paying off debt and related personal finance factors. Anyone who ever takes out a loan, uses a credit card, or pays a bill over time has a credit history. This history is summarised with a score that indicates the borrower’s credit risk. A low credit score signals bad credit, while a high credit score is an indicator of good credit. A person who has bad credit will find it difficult to get approved for a new loan, or at least will be offered credit only at a very high rate of interest.

When applying for a mortgage, it’s important to have a good understanding of your current financial situation so that there are no surprises along the way.  Applying to various lenders will have a further adverse affect on your credit so we recommend speaking to an advisor who specialises in mortgages for those with poor credit.  They will know the market inside out and be able to guide you through your mortgage application.  Here are a few examples of previous credit issues that people have been faced with and still managed to obtain a mortgage with:

  • No credit history
  • Low credit score
  • Late payments
  • Missed mortgage payments
  • Defaults and CCJ’s
  • IVA’s and Debt Management Schemes
  • Repossessions
  • Bankruptcy

What to expect when applying for a mortgage with bad credit

When an individual has adverse credit the lender deems the borrower as a higher risk and this will be reflected in the terms and conditions of the mortgage. Here are a few points to take into consideration before applying for a mortgage:

  • There will be fewer mortgage options to choose from
  • You will need to put down a higher deposit than a standard mortgage
  • The interest rate will be higher so therefore more expensive
  • The lender may want to look more closely at your finances. This may include closely analysing previous bank statements or asking for more supporting documentation and evidence of income.

How to help improve your credit rating

By improving your credit rating, you can show potential lenders that you are working towards a better financial future.  Here are a few tips on how to improve your credit score:

  • Avoid applying for too much credit
  • Make sure you check your credit report and query any inaccuracies
  • Ensure you are on the electoral role
  • Always make your payments on time
  • Close down any credit accounts you no longer use
  • Stay within you credit limit

Considerations before taking out a mortgage

Taking on a mortgage is a huge commitment and not something to be taken lightly. It is important that you take the time to fully understand the terms and conditions of the mortgage and the costs involved to ensure you will be able to afford the regular repayments.  If you don’t manage to keep up with the payments, your home could be repossessed.  If there is part of the mortgage you are unsure of, please discuss it with your mortgage advisor to ensure it is the correct product for your situation and personal circumstances.

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