The short answer to the question we posed in the title of this article is “yes.” It is indeed possible to acquire mortgage funding for a home if you have bad credit. The extent to which you are eligible depends on the type of bad credit you have and how long you’ve had it for.
What type of mortgage can I get?
Because of poor credit history, lenders will likely see you as ‘risky.’ So, they won’t be as generous with their funds as they would be had you presented them with an exemplary credit history.
The type of mortgage you could look at is referred to in the industry as a ‘bad credit’ or an ‘adverse credit’ mortgage.’ This is a mortgage product which can have a higher interest rate than a standard residential mortgage. It may also require you to put down a higher deposit (around 25 per cent, compared to a typical deposit of around 10 per cent).
On the plus side, at least you have your foot on the property ladder. Some people will wait until their credit score improves to get a better mortgage deal but it means they’ve missed out on a couple of years of paying off their mortgage.
Where do I get a bad credit mortgage?
You won’t find such a mortgage at a high street bank; you may find a couple at a building society but, by far the best way to access this type of mortgage – and see the many available – is to get help from a mortgage broker. An experienced broker will have helped many individuals and couples in the same position as yourself over the years.
How do I know if I have bad credit?
It’s very easy these days to get a credit report from an independent body, such as Experian, Equifax and TransUnion as examples. You may have to pay for the report, but they can give you an idea of what your situation is before you approach mortgage lenders. Some credit report companies will give you a free copy of your credit file.
What is the type of bad credit that lenders look at?
The type of debts that lenders will look at include county court judgements (CCJs), Individual Voluntary Arrangements (IVAs) and bankruptcy. They will also take into account missed payments on your credit card, utility bills, defaulting on a loan etc. Different lenders have different criteria though; some won’t entertain an application from an individual who has been bankrupt, other lenders may be more concerned about a CCJ. As mentioned, that's where a broker adds value based on their knowledge and experience of many lenders available.
Incidentally, it makes sense to ensure you have a good chance of getting a mortgage before you fill out a lender’s application form. That’s because, rather unfairly, every time you apply and are rejected, that negatively hits your credit score too.
How to improve your credit score
So, how do you make yourself look better on paper then? Well, the longer you have gone without missing payments or since you’ve been bankrupt etc, then the better your chances of getting a residential mortgage.
Another plus is having a regular income. That’s looked on favourably by lenders. So too is honesty, i.e. letting lenders know what happened in the past and how you’ve gone on to change your situation to ensure you don’t fall into a similar pattern.
In the meantime, cancel any direct debits you no longer need and try to cut back on spending so you get into the habit of saving (you’ll certainly need to if you’re successful with a mortgage application). It looks better if you can show you have a certain amount of outgoings every month which you regularly manage to pay.
Get in touch
For help in getting a residential mortgage with a poor credit score then it’s best to take a mortgage broker’s advice. He or she can point you in the right direction and counsel you as to whether now is the time to apply or if it really is better to hold off and boost your credit score meantime. Contact Teal Finance 01603 574404 or email: hello@tealfinance.co.uk.