Buying a home with poor credit score

To consider you for any kind of loan, including a mortgage, a lender will take a look at your credit score. The better your rating, the more likely they are to approve you for a mortgage. But what happens if you have a poor credit report?

Can I get a mortgage with bad credit?

If you have a poor credit history it can be tricky to get a mortgage, but it’s not impossible. There are a few options to consider if you want to buy a home but have bad credit. Some options will depend on what’s causing that poor credit rating.

What are the causes of bad credit?

Anyone who has ever had a bank account and other financial products will have a credit record. It’s there to tell financial providers a little about you and how risky it might be to lend you money.

If you have always stayed in credit with your bank, paid your credit cards on time and faithfully settled all your monthly bills, your credit rating should be good. 

Issues that give you a poor credit rating include:

  • Missing payments on a finance package
  • Going over your credit limit
  • Falling into arrears on a mortgage or other payments (missing one or more payments)
  • Defaulting – failing to pay back money by the deadline
  • Receiving a County Court Judgement (CCJ)
  • Entering a Debt Management Plan
  • Bankruptcy
  • Individual Voluntary Arrangements (IVA)
  • Having goods repossessed

What else do lenders consider when assessing you as a customer?

When applying for a mortgage, lenders will look at your credit file, together with details of your income and outgoings, your age and how much deposit you have.

In doing this, they are assessing how easy you will find it to make each monthly mortgage repayment and how likely you might be to fall behind. Customers who appear more reliable will be offered better rates. 

Do any lenders specialise in mortgages for people with bad credit?

There are some specialist lenders that accept a wider range of customers. Every lender has their own specific criteria for their mortgages, and credit score is just one of their measures.

When we talk about ‘bad credit mortgages,’ there are no specific mortgage products – just mortgages targeted at people with a lower credit rating. You will often find that the mortgage rates are less favourable than the average deal, because the lender feels that they are taking a bigger risk.

Your interest rate is likely to be on the higher side, and you will probably be asked for a bigger deposit. 

How much deposit will I need for a mortgage if I have Bad Credit?

Someone with good credit might find they can get a mortgage with a deposit as little as 10%, while a poor credit mortgage tends to require at least 15-20%. The bigger your deposit, the more attractive you are to a lender. 

If a 15% deposit is not affordable, you could look into Help to Buy schemes. These government initiatives are designed to lend you money for a deposit of up to 20%. 

If you have been declared bankrupt in the past six years, however, you will not be eligible for Help to Buy.

If I have bad credit how can I improve my chances of a mortgage?

An important thing to be aware of is that making multiple mortgage applications can make your credit score worse – especially if your application is rejected.

One approach is to ask your current bank if they have products to suit you. This way, you can see if you’re likely to be approved, without affecting your credit history.

There are also some simple ways to improve your credit score. Ensure you are on the electoral roll, and try to stay at the same address for a year or two. Moving frequently can affect your credit rating. 

It also helps to get all the documentation ready that you need when applying for mortgage deals – a valid passport or driving licence, recent payslips, bank statements and utility bills. 

How can a Mortgage Broker help?

Whether you’re a first time buyer or have owned property before, a Mortgage Broker is a great source of information. Many poor credit mortgages are only available via Mortgage Brokers and we’ll have a good idea of the lenders most likely to accept you as a customer.

We’ll start by checking your credit score and exploring your specific financial situation. 

We’re registered in England & Wales and registered with the Financial Conduct Authority, so hundreds of customers trust us to help them find a suitable mortgage. 

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