Getting a mortgage with bad credit

February 10th, 2021
Getting a mortgage with bad credit

When you have bad credit, trying to secure a mortgage can be one of the most stressful things you do. This is especially if you have bankruptcy, defaults, individual voluntary arrangements, and county court judgements in your record.

However, it is still possible to get a mortgage with bad credit.

Bad credit mortgages are also referred to as sub-prime mortgages or adverse credit mortgages. These are offered by building societies and specialist lenders, and sometimes via mortgage brokers. These lenders are not hasty about making conclusions about your bad credit history and thus consider applications on a case-to-case basis.

If you are looking to apply for a mortgage and worry that your bad credit may sideline you, here is everything you need to know about bad credit mortgages, and how you can increase your chances of securing one.

What is bad credit?

Every adult has a credit record. This electronic document contains a person’s financial history that is accessible to lenders. These records are used as references whenever one applies for credit, including a mortgage. When your credit record includes missed loan repayments, too much debt, and issues like bankruptcy, you are said to have bad credit.

If you think you may have bad credit, you can check your credit score from any credit reference agency at a fee, or check online for free credit score check services. This will tell you what your credit situation is.

Mortgage options for people with bad credit

When you have a bad credit rating, your mortgage options are limited since most lenders see you as a high-risk borrower.

The first thing you need to do when applying for a mortgage with bad credit is to come up with a security deposit. How much is required for your mortgage depends on the lending institution. However, the deposit rates vary between 20% and 30% of property value.

The second factor you need to be aware of is the interest rate. At the moment, the best interest rates for first-time buyers with bad credit require a 30% deposit for an initial discounted interest rate of 2.99% and a 5.8% APRC.

Generally, having bad credit means that it will cost more to secure a mortgage. The lenders charge more because of the risk involved in case you default on your payment.

These costs include:

How to pay less in mortgage fees if you have bad credit 

If you want to avoid paying higher interests and deposits for mortgages, you can work on improving your credit score before applying. The best way to improve your credit score is to pay off existing debt and start paying credit card bills and other bills on time.

 

With time, your credit score will improve, and you may be approved for a mortgage at standard market rates. You need to wait a few months before applying to create a consistent pattern with your repayment schedule.

If you have bad credit, you can decide to apply for a mortgage at higher interest and processing fees, or work on your credit score to qualify for better rates. Whichever route you choose, rest assured there are mortgage options for your needs.