Bad Credit Mortgages
Bad credit and looking for a mortgage? It is possible, although you may end up paying higher interest rates. Let’s look at how to get a mortgage with a bad credit score.
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What is a bad credit mortgage?
A bad credit mortgage is simply a traditional mortgage for someone who has a poor credit history. The criteria may be tighter than standard mortgages and the interest rates and arrangement fees are likely to be higher. You might also hear the terms ‘adverse credit mortgages’ or ‘sub prime mortgages’ though the second term is more common in the US.
How does a bad credit mortgage work?
If you have a low credit score with the main credit reference agencies in the UK, such as Experian, Transunion and Equifax, you may find it more difficult to find mortgage lenders willing to take the risk on you. A high street lender may not be interested in helping you own your own home.
If you’ve struggled in the past with late or missed payments, this will affect your credit report, making it harder to get a mortgage. Mortgage applications for bad credit mortgages work the same way as regular mortgages once you meet the eligibility criteria.
Bad credit mortgage eligibility criteria
Eligibility criteria for mortgage deals where you have an adverse credit profile may be a little more difficult to meet. It’s likely that the interest rate will be higher than other products, and you may require a larger deposit as well. This can make your mortgage application more challenging. Using specialist lenders might enable you to find an affordable product even with your poor credit score.
Mortgage lenders will be interested in the financial situation that led to your bad credit status. They will ask about:
When you started to experience problems with your credit scores – the longer ago this happened, the less of an issue it is likely to be with your application.
The type of issues you had and how severe they were – if you missed payments, how many did you miss, and what was the extent of your mortgage arrears? If you had issues with credit card payments or a car loan, these are unlikely to be treated as seriously as IVAs (individual voluntary arrangements), DMPs (debt management plans) or bankruptcy.
The reason for your poor credit rating – if your credit problems were due to an unexpected event, such as a bereavement or illness, this may be viewed more favourably than if you just didn’t manage your finances very well.
How far back will a mortgage lender look into your credit history?
When you apply for a mortgage with a bad credit history, the lender will usually look back six years for any evidence of financial issues with your past credit ratings.
How can Simmonds Mortgage Services help you?
If your rating is low, you may struggle to find a mortgage deal with high-street lenders, but all is not lost. Using a specialist mortgage broker with experience in the whole mortgage market, it’s possible to locate bad credit mortgage lenders who will be willing to lend you money.
At Simmonds Mortgage Services, we help people with a bad credit history to get the best deal for their circumstances with affordable monthly payments and a manageable deposit.
Call our mortgage broker agency on 01184 693037 today to chat free with one of our specialist brokers.
Bad credit mortgages FAQs
How much deposit will I need?
The deposit you might need will depend on the reason for your bad credit record. For a late payment or no credit history, you'll usually need a 5-10% deposit, whereas if you've had county court judgements, you may need 10-15%.
With a debt management plan, the deposit is likely to be around 15-30%, and if you've experienced a repossession, you'll probably need around 30-40% deposit to get a mortgage with bad credit.
Will I always be on a bad credit mortgage even if my rating improves?
If your bad credit rating improves, you may be able to remortgage onto a product with a better rate. Make sure that you make all your mortgage payments on time and in full each month to increase your score over time.
What is considered bad credit?
There's no single definition of bad credit - each lender will have their own criteria, but a missed payment, failing to pay back a personal loan, having a county court judgement and defaulting on a previous mortgage are all actions likely to cause a lender to view you as a higher risk borrower.
Can I pay back a lifetime mortgage?
While it is usually possible to pay back a lifetime mortgage, be aware that you may incur an early repayment charge, so make sure you get tailored advice before deciding to repay early.
What if there is a mistake in my credit report?
Mistakes can be made in credit reports, so it's important to check them before and during the application process. If you find an error, tell the credit agency and ask for the record to be corrected. A mistake could affect your eligibility for a mortgage with bad credit, so take the time to check everything for accuracy.
Is a credit file the same as a credit report and a credit score?
The credit file is like a folder of information that the credit reference agency holds about your financial history. A report can be prepared from the file, and then you can work out an overall rating or score.
Why should I use specialist mortgage lenders if I have poor credit scores?
High street lenders may not offer the best deals, so it's best to use a bad credit broker who can access the whole market and search for the right product and lender to suit your specific circumstances.
Can I get a joint mortgage with bad credit?
If one applicant has a lower credit score, it is usually still possible to get a joint mortgage, although the amount you can borrow may be affected.
If you both have a low credit rating, you'll probably find it challenging to find mortgage companies, even specialist lenders, who are willing to loan you the money to get on the property ladder.
Can I get a 100% mortgage with an adverse credit history?
It's very unlikely that you will find a lender to loan you 100% of the property value if you have poor credit. This is because you will be viewed as too high risk.
Can mortgage brokers find better deals for people with problems in their financial history?
You are more likely to be able to access deals through a broker that aren't available to the general public.