Andy here, let’s talk about your credit score! Three little numbers that could be the difference between you getting finance on that car, getting a credit card, or getting a mortgage – or not. When you apply for any type of loan, including a mortgage, lenders will check those numbers so they can see how you have handled previous debts. The higher your score is the less of a risk you are to lend money to, so the better your score, the more likely your mortgage application to be accepted. Whereas bad credit and buying a home obviously may affect you negatively but it doesn’t mean you cannot get a mortgage.
Before reading further, if you need our help with understanding your credit report and how it may affect your acceptance of a mortgage please feel free to call us. You may also find the these other articles relevant:
- I explain how to find the best mortgage in this post.
- Our latest homeowners guide may also be of interest.
Of course, your credit score isn’t the only information mortgage lenders are going to look at, but a low credit score due to missing payments, or having a lot of credit already on the go, is going to make things a lot harder for you when it comes to buying a house.
Having said that….
Can having Bad Credit affect Buying A House?
Despite all the horror stories you might have heard about people missing a payment on a clothing catalogue back in the 90’s and then not being able to get so much as credit on a DFS sofa once they reached adulthood, it is possible to get a mortgage if you have bad credit.
Certain factors on your report will ring louder alarm bells than others – such as defaulting on loan repayments, and applying for credit too often. That catalogue you had as a teen is unlikely to cause you too many problems though.
If you’re unsure of your credit score it’s always a good idea to check it before you start thinking about applying for a mortgage. This will give you a good indication of how lenders may view you, and allow you to take steps towards improving your score before you speak to a lender.
And it’s not just your credit score you need to worry about. If you’re planning on having a joint mortgage with someone else, both of your credit scores will be considered.
The good news is that even with less than perfect credit, you’re not consigned to the ‘renting forever’ pile indefinitely, and if your credit score isn’t something that can be rectified by knuckling down for a year or two, there are mortgages out there that are designed for people with poor credit. Some lenders specialise in offering these, and a good mortgage broker (nudge, nudge, wink, wink) will be able to help you find one of these.
Having said that, it’s important to know that you’ll probably pay higher interest rates and you might need to come up with a bigger deposit.
So, what exactly is a Bad Credit Mortgage, and how does it work?
How Do Bad Credit Mortgages Work?
They work exactly like regular mortgages, except for the higher interest rates and the fact that there’ll likely be a lower limit on how much you can borrow. Also, there’s that larger deposit I mentioned; 20-25% of the property value rather than the standard 5-10%
Yeah, that sucks a bit, but it’s only because having a bad credit score means that you’re seen as more of a risk to lend money to when buying a home.
Of course, as I mentioned earlier, the lending criteria is specific to each individual lender, so if you can prove that you have a regular monthly income and your bad credit is largely down to exuberant youth rather than default after default on loans within the last couple of years, you might be looked upon more favourably. As you can see having bad credit and buying a home, do go hand in hand but what do you do to improve your odds.
How Can I Maximise My Chances Of Being Accepted?
Aside from your credit score, a lender will want to see your income, monthly outgoings and any savings, to help them understand how you manage your finances. A good, steady income, some money in savings, and a bank account that’s never in the red would be a good counter-attack to your bad credit score!
A lender wants to see all of things – not just to ensure that you can keep up with the monthly mortgage repayments – but also to make sure you’re not going to be affected by changes such as interest rates going up, or some loss of income.
Whether you have poor, low or downright bad credit or not, there are things you can do that will help your chances of getting accepted for a mortgage – and these things become even more important if you are hoping to get a Bad Credit Mortgage.
You want to show yourself in the best possible light to a lender, and you can do this by:
- Meeting all your utility bills and other payments on time and in full
- Aiming to have money left in your account at the end of each month – if it already looks like you’re living close to the edge a lender might not be convinced that you’ll be able to afford an extra outgoing each month in the form of a mortgage payment!
- Looking at your credit report regularly and checking that all the information there is accurate
- Adding a note to your credit report for lenders if there’s a good explanation for your past financial difficulties
- Asking someone to act as a guarantor for you. It’s a big ask – really only something you could ask a parent or very close relative – but it would reassure a lender that the monthly mortgage payments would be met even if you began to struggle
Can Buying A House Improve My Credit Score?
Yes! As much as not making payments on a loan regularly can affect your score for the worse, making payments on time and in full can swing it the other way. Over time, having a mortgage account that shows you’ve been making your payments can be incredibly beneficial to your score.
If you’re ever in danger of missing a payment it’s important that you contact your lender before it’s late. Late payments stay on your credit report for seven years, and the more recent it is, the more it will affect your credit score.
How Can A Broker Help Me?
I’m glad you asked. Not all heroes wear capes (we found they kept getting caught in the photocopier), but mortgage brokers are indeed there to save the day!
We meet people from all walks of life and help them get onto the property ladder – and some of those people have bad credit. The huge advantage to having a broker help you find a lender rather than contacting them yourselves is that we know the market incredibly well and will know who is most likely to offer you a mortgage.
Also, not only do we know who is most likely to accept you, we also know who can give you the best deal – sometimes deals that wouldn’t be available if you were to contact them directly. And this isn’t just with lenders that you’ll find on price comparison sites or on the high street – we have relationships with lenders who you might not have heard of, but who could be perfect for you!
A mortgage broker can also help you with your application and suggest ways to make it as strong as possible to help your chances. We’re also helpful if you already have a fixed term mortgage that’s due to end and are worried that a low credit score could make it harder to get a good deal.
And, that’s not all – the best bit about using a mortgage broker is that we’ll take care of the whole mortgage application process from start to finish, meaning you won’t have to have any contact with the lender yourself – leaving you free to spend more time getting excited about becoming a homeowner!
If you want to know more about how bad credit and buying a home can affect you buying a house, or you want more information on finding the best mortgage deal to suit your current situation, please get in touch and we’ll see how we can help!