Homeowner Loans for Bad Credit
There are several lenders that specialise in homeowner loans for people with bad credit or poor credit history.
The interest rate is generally determined by how much bad credit is registered against you - the more bad credit, the higher the rate. If you have bad credit or poor credit history, you need to think carefully about taking out a high-interest rate homeowner loan; as with any homeowner loan, you can lose your home if you don’t keep up repayments on it.
Understanding Bad Credit And Homeowner Loans
Lenders can work differently when assessing whether they lend to an individual.
Some lenders work solely on someone's credit score to determine if they are happy to lend, while others are more concerned about any defaults or county court judgments (referred to as adverse credit) registered against a potential borrower. In addition, some lenders work on a combination of the credit score and adverse credit.
A good second mortgage broker should have access to 10 - 15 lenders and know which lender will likely accept your application. Their expertise will direct you towards lenders who are prepared to consider applications where a client has bad credit.
Any bad credit you have will impact the interest rate you pay. Essentially, the more bad credit you have, the higher the interest rate.
Some lenders will ignore defaults or county court judgements (CCJs) that were registered, say more than two years ago, for underwriting purposes. Others might ignore any adverse credit over three years old.
A knowledgeable second mortgage broker will be aware of the lender’s criteria, and if you are only three months away from a county court judgement being two years old, they should recommend you delay the application for three months and benefit from a lower interest rate.
As with all credit arrangements, if you begin to experience financial difficulties, it is highly recommended that you contact the lending company and explain your situation. They are likely to consider some sort of arrangement to help you. It might be to reduce your monthly repayment for 3 or 6 months or switch the loan from repayment to interest only.
Tips For Improving Your Chances Of Approval
There are a number of tips for improving your chances of a loan application being accepted when you apply for a loan. One important factor is your credit score. Credit reference agencies calculate your credit score, which includes the information below:
Credit record - This looks at your current and past credit agreements to see if you’ve made prompt payments or missed any payments. It also looks at your existing credit agreements, including credit cards, loans, mortgages, and utility bills, to assess how much of your available credit you are using. This is known as credit utilisation.
The Electoral Roll - showing your current and previous addresses on the voters' roll will assist your credit score. Public records - these will show any adverse items such as county court judgements (CCJs) and bankruptcies.
Public records - these will show any adverse items such as county court judgements (CCJs) and bankruptcies.
Financial associations - If you’ve taken out a mortgage with another person, any lender might consider their financial situation when you apply for credit.
Credit card utilisation has a bearing on your credit report. Credit card utilisation is the actual percentage of credit you are using on your credit cards against the limits available to you. For example, if you had three credit cards with a limit of £10,000 on each, you could potentially borrow £30,000. If you had borrowed, say, £4,000 on each card, you would owe £12,000. In this instance, your credit card utilisation would be £12,000 divided by £30,000 = 40%
It’s generally felt by credit reference agencies that a good credit utilisation level is 30%. If your credit utilisation is much higher, say 50% - 75%, it might indicate that you are spending more than you can afford.
Another tip might be to wait until your probation period is over if you’ve recently started a new job. Lenders view a change of employment differently. Some may consider granting a loan while you are on probation if you’re working in the same type of role in the new job that you were in your previous position.
If you have a poor credit score, consider improving your credit score regardless of the type of loan you are looking for. You can affect your credit score by maintaining regular payments on all your credit commitments. If you missed some repayments a year ago but have repaid and made all monthly payments since there's a strong chance your credit score will have improved so you can get a personal or secured loan at a lower rate.
Application Process For Homeowner Loans
The application process is relatively straightforward for an experienced second mortgage broker:
The broker will complete a Fact Find to understand your financial situation clearly. They will also establish your short, medium and long-term plans.
The broker will consider all your information, underwrite your application and compare the second-charge mortgages available to you. At this point, they will recommend a lender and a particular product. It might be your intention to move home in, say, three years and as a result, taking into account all other information, the broker may recommend a three-year fixed product.
If you are happy with the proposed terms, the broker will apply online to the Land Registry to see that the property is registered in your name and who holds the first charge. If the property is leasehold, the broker can check to see if sufficient years are remaining on the lease.
The broker will then let you know the paperwork they require from you, which could include an application form, a direct debit, your three most recent wage slips, proof of identity, proof of residency, a marriage certificate etc.
The broker will then review the application again to check that you’ve met the lender's requirements.
If needed, the lender will instruct an internal valuation of your property.
Once the valuation report is received, the application is sent to the lender for them to formally agree and complete the application; at this point, the funds will be sent to you.
For more information about homeowner loans or to speak to someone about applying, contact The Second Mortgage Company today.