Can I Apply for a Mortgage With Bad Credit?

28/05/2019

It can be difficult for those with a bad credit history to successfully apply for a mortgage. Even when accepted, applicants can face higher interest rates, and a limited choice in loans compared to those with good credit ratings. A bad credit history can be the result of a variety of different financial issues in the past, including missed payments on credit cards, hard credit searches by lenders when applying for financial products. Sometimes, a bad credit rating is made that extra bit worse due to having been declared bankrupt.

Recent research into people’s awareness of credit scores have claimed that over 50% of the UK do not fully understand what their credit score actually means. With this many people unaware of what a credit score does, what it means, how it works and why it is quite so important, it is no wonder applying for mortgage with bad credit has become a topic of focus for many applicants.

For anyone with a bad credit rating, there are ways to successfully apply for mortgages. However, although these avenues are very often more limited, they are available and often are the much-needed solution. You just need to know where to look, how to apply and what to pay attention to when you have bad credit and are seeking to be accepted for a mortgage. It is also worth knowing that eligibility for a mortgage will be influenced by the severity of the credit history and just how bad it is.

Why Does Bad Credit Affect Mortgage Applications?

In the aftermath of the 2008 financial crisis, mortgages made specifically for those with bad credit got a sizeable chunk of the blame. These types of secured loans are typically referred to as ‘sub-prime mortgages.’

Along with the obvious concerns that bad credit can bring to lenders, the reputation of sub-prime mortgages and those who apply for them has now made it extremely difficult to apply for a mortgage without demonstrably good credit, positive credit behaviour and financial responsibility. Sub-prime mortgages were considered very much financial products of the past. However, recent years have seen a handful of lenders launch brand new sub-prime mortgages for those with a poor credit history.

How to Apply for a Mortgage with Bad Credit

Although applying for a mortgage through a reputable lender may be tricky, it is not impossible. However, applicants will have to acknowledge a few basic facts before going through this process:

Bigger Costs – Mortgages will more than likely probably be expensive and more so than if the applicant had a better credit history and rating. This rings particularly true when compared to other lenders who accept only good credit scores.

Fewer Options to Choose From – Applicants will have a restricted amount of loans to choose from, with large numbers of lenders for any type of mortgage, be it a first or second charge mortgage avoiding those without near perfect credit.

Larger Deposit – A larger deposit will typically be required for the mortgage in question compared to those who accept only good credit scores.

What Else do Mortgage Lenders Look At?

In addition to a credit score search, lenders will also check on other aspects of your finances, such as your spending, outgoings, income and other streams of money. It is worth undertaking extensive research on all the potential deals on offer in order to find the cheapest, and best loan for your specific situation.

Can I Use a Broker for Bad Credit Mortgages?

Many people have found that using a mortgage broker has helped them to find a suitable mortgage for their credit and situation. Many of the mortgages available for those with bad credit are only accessible through such brokers, who have access to panels of lenders and exclusive mortgage deals that can’t be found elsewhere.

As with other mortgages, it remains vital that you find a reputable mortgage broker to ensure a trustworthy, suitable and affordable loan. Mortgage brokers are one of the many other additional costs those with a poor credit rating may face when trying to get a mortgage.

Increase Your Chances of Acceptance

There are various other factors that can help to increase your chances of getting a mortgage with a poor credit score:

  • Help from family
  • Guarantor
  • Financial adviser
  • Improve your credit rating

Help from family – Lenders may accept a deposit that has been given to the applicant as a gift from their family. This deposit must be categorised as a gift, with sufficient evidence that the applicant is not legally required to pay it back.

Mortgage Guarantor – Lenders may also accept an applicant with a bad credit rating if they have a guarantor in place. This guarantor is financially responsible for the mortgage if the applicant is unable to make the required payments on the loan or if they default altogether. It is vital that the guarantor for a mortgage loan knows the full extent of their responsibilities in this role, and is fully prepared for all the consequences this may bring.

Financial Advisers – Hiring a professional to talk you through the best methods for a successful application can be very helpful, and may show you options you might have missed whilst researching mortgages.

Improve Your Credit Rating – Although this may take some time, making improvements to your credit rating can significantly improve your chances of success when applying for any mortgage. There are many different ways in which you can improve your credit score. Some of the main ways to do this include staying within your credit limit at all times and never going into overdrafts or similar, restricting the amount of credit you apply for and make sure repayments are always made on time. 

As a mortgage is secured against your home, your home could be repossessed if you do not keep up the mortgage repayments. Think carefully before securing other debts against your home.

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