Are you worried about being rejected for your mortgage? Wondering how to get a mortgage with bad credit? The good news is that although it may seem daunting to find a mortgage with bad credit, it is possible. Many find a mortgage despite having a less-than-ideal relationship with previous creditors.
If you are looking for a mortgage, there are plenty of lenders that specialise in what are typically referred to as sub-prime or adverse credit mortgages.
A Short Step-by-Step Guide To Getting A Mortgage With Bad Credit:
Step 1: Create a positive recent credit history
Step 2: Examine and fix what you can on your credit report
Step 3: Get a rough idea of what you can get through online research
Step 4: Look into government schemes to help with purchasing
Step 5: Talk to a mortgage broker.
Step 6: Double check with other brokers.
How To Get That Mortgage, An Overview
A good place to start is to acquire the services of a financial adviser or mortgage broker in order to discover which lenders are available to you. Many more mortgage opportunities are accessible through such an intermediary than would be available without one.
There are also several mortgage comparison websites that may help you find a loan that will fit your needs. Also, remember that if one lender doesn’t approve your application for a mortgage, it doesn’t mean they all will.
If the high street banks won’t offer you a mortgage, using an adviser will help you find more appropriate lenders.
You can start by improving your credit score now. It’s always a good idea to be conscious of your credit score, but when preparing to apply for a loan, it’s crucial.
Look into your credit to make sure your score is based on accurate information and dispute any incorrect adverse actions on your credit – often correcting errors can have provide a quick boost to your score.
You can begin to work to establish a history of timely repayment as soon as possible. Even slight increases in your credit score will often give you more options to choose from, lower interest rates, and require lower deposits. If nothing else, it will provide evidence of your intent to be responsible for your debts when a lender considers you for a loan.
There are also several programmes intended to assist those looking to buy their first home, those living in public sector tenants, those with low-income, and so on. Although these programmes may not help you get a mortgage, some will impact the principal of the mortgage, making the loan easier to get with bad credit.
If you are new to mortgages, it may seem vexing. If you’ve applied for a mortgage before and were turned down by one lender, it doesn’t mean you won’t be able to get a mortgage. High street banks and building societies often have differing lending criteria, and finding the mortgage that fits your situation best is key. It may take shopping around, and using an advisor or broker can greatly assist you in finding the right fit.
Finding Mortgage Advice and Information
You can find a registered and regulated mortgage broker or adviser through many different means. The online database and searching tools suggested by Northern Ireland Direct Government Services are:
Here are some additional sites that specialize in ‘bad credit’ mortgages:
It is also wise to look into comparison sites to get an idea of the deals available on the market;
These comparison sites won’t all give you the same results, so it’s a good idea to have a look at several to get an idea of the market and what is available. Ultimately, with subprime mortgages, this information should be used to arm you with information, but it’s wise to seek the advice of a professional broker or adviser.
Advantages of an Adviser or Broker
A mortgage is often the largest financial product an individual will ever use representing the capital for the largest purchase they will ever make. A mortgage is a big deal, so it’s a good idea to get good, professional advice.
There are further advantages to using a broker or adviser; if a mortgage turns out to be unsuitable to you and you have gone through an adviser, you will have more rights when and if you file a complaint. This will grant you leverage to take the matter to court if you were not effectively advised.
Lenders and brokers are obligated to offer advice in most cases, however, you can choose to ignore the advice and find your own mortgage. If you do this, it’s called an “execution-only” application, but be aware that doing so means that you take full responsibility for your mortgage decision.
A mortgage adviser, or independent mortgage broker, has vast knowledge regarding the mortgage market. They can compare and contrast several mortgage products in order to find something right for you. It is wise to speak with several mortgage advisors in order to get a good diversity of information, advice and loan offers.
There are three different kinds of mortgage adviser;
- Those tied to a specific lender
- Those that access a specific set of lenders
- Those that check the entire market for all available products
All mortgage advisers must offer you advice when recommending the most suitable mortgage for you. If things go wrong, you are protected. In such a situation, you would contact the Financial Ombudsman.
When looking for a mortgage adviser or mortgage broker, it is a good idea to find someone that is working for you and not a specific lender. Avoid such advisors that are keen only to suggest a single possible lender, and be aware of ‘non-advised sales’.
Sometimes the role of an adviser can be vague and blurred – there is a difference between advice and ‘non-advised sales’, with the latter offering less in the way of protection if the mortgage turns out to be a poor selection in your circumstance.
Many banks, building societies and specialist brokers will merely give you information, and talk you through your options, while leaving the decisions about complicated mortgage products up to you to truly decipher and decide on.
If this is the case, you are buying based on ‘information’ and they will not be assessing that specific product and it’s appropriateness for your specific needs. However, if you use a mortgage based on these circumstances, ‘non-advised sales’, it means you will have fewer rights if the mortgage isn’t really in your best interest.
However, if you are given unsuitable advice regarding a product and recommendation you could have recourse in the form of a case for ‘mis-selling’.
Meeting with a Broker or adviser
It’s important to know and understand a mortgage adviser. Before talking to an advisor or broker, it is best to have important information available, here is a checklist to help you prepare to speak with a mortgage broker.
Some questions that will help you gauge the adviser’s credibility and get the best out of the meeting –
Are you whole of market?
If the adviser claims to offer a ‘wide range’ it could mean they do not cover all available lenders in the market. Make sure you are able to get correct information on the products they are offering and whether they are only offering products from certain lenders.
What is your fee?
Some advisers have no fees and make their money on commissions from the mortgages they sell, while others earn money based on charging fees. It is, in fact, often more complicated still. Make sure they are forthcoming about their cost and payments.
Are you on the FCA register?
You should only use advisers and brokers on the FCA registry, a searchable database.
What mortgage would you recommend for me and why?
What different repayment methods are available?
When your broker or adviser gives you a product recommendation they must also give you mortgage illustration documents. This document is often referred to as a key facts illustration.
A key facts illustration will detail the terms, conditions, expectations and exceptions to the repayment of the mortgage debt. Look this over carefully and make sure to keep the document in a safe place for future reference.
Improve The Mortgages Available To You
If you are looking to purchase a home and you have bad credit, your credit history is going to be examined pretty closely. With poor credit you are going to be subjected to a relatively rigorous mortgage application process. If you application shows you have the means to afford to repay the mortgage, the terms of the mortgage and the interest rate will be impacted by your credit history, here are some tips to improve the outcomes and choices you will have;
Examine your credit report – There are many sites, such as Credit Karma, Noodle and ClearScore which will give you a free credit report and allow you to look through the information there. Another source is the credit reporting agencies themselves;
Being aware of what you have on your credit report will help you determine what steps in the short and long term you can take to improve your mortgage opportunities.
Here are a few tips to improve your credit score in the near to long term;
Register on the electoral roll – if your name’s not on there, you’ll find it much harder to get credit. You can register to vote online or by post.
Correct Errors On Your Report – Often times there are errors on people’s credit report. These errors can negatively impact your credit score and therefore your mortgage options and interest rate, often without a person even knowing. If you find something in error, work to have it corrected, even small improvements in credit score and credit history can have an impact.
Check for fraudulent activity – Sometimes your vital information may have been compromised, allowing someone else to access your credit. If you believe you have been the victim of credit fraud, act immediately. Often the site you check your credit score on will have options to report such issues. You should also contact the creditor, the credit reporting agency and the FCA.
Pay Off Smaller Outstanding Debts If Possible – A lot of us have debts plaguing our credit report which we have forgotten about, often because they were so trivial they slipped our minds. Although they may seem insignificant to us, they often make it to your credit report where they can do serious damage. If you checkout your credit report and find some relatively small debts you can pay-off, do it. It will improve your credit and show your commitment to paying your debts.
Contact your creditors – if you communicate with your creditors, you will often be able to setup a payment arrangement that works for you and your creditor. Creating realistic repayment terms will help you to make payments on time, which will show your reliability and start to improve your credit score.
Pay your bills – late payments are a blight on your credit. Showing timely bill payment will help your credit and will work in your favor when your being considered for a mortgage. And it’s never too late to start – good financial habits, even for a relatively short period, can have a very positive effect on your mortgage options.
Use a credit-builder credit card – Often those with poor credit cannot get credit cards, although a small line of credit is an excellent way to show your financial responsibility. Getting a credit-builder credit card and spending wisely with it while paying it on time every month will build your credit and improve the impression you make with potential lenders.
Check if you’re linked to another person – Sometimes a friend, family member or spouse’s credit is linked to yours due to having a joint account. This could affect your personal rating if they have a poor score.
Several government schemes are available in the UK to help you buy a home. These include the Help to Buy schemes including Shared Ownership and an Equity Loan programmes to help hard-working people like you take the steps needed to buy your own home.
Shared ownership allows you to purchase a portion of the home, from 25%-75% and pay rent on the portion of the home you weren’t able to buy.
Help to Buy Equity Loan scheme offers up to 20% of your home to be financed through the program with a deposit of only 5%. These loans are interest free for the first 5 years! With this program you would only need to seek a mortgage for the remaining 75% of the cost of the home. It’s important to note that this program is intended for newly-built homes generally.
There is also the Help to Buy: ISA, which gives first-time home buyers a government bonus. It is a scheme to encourage saving for a first-time home-buyer. The program gives a 25% bonus to savings made toward a new home purchase up to £3,000 or up to £6,000 for you and a partner.
Right to acquire is available to most housing association tenants and allows them to buy their home at a discount of up to £16,000. You can apply to buy your housing association home if you’ve had a public sector landlord for 3 years. These landlords include:
the armed services
NHS trusts and foundation trusts
Right to buy is another scheme, virtually identical to Right to Acquire, which allows public housing tenants to purchase their own homes. The discounts in Right to Buy are up to £108,000. There are also plans to extend right to buy to housing association tenants as well.
Starter Home scheme is also available to first-time home buyers. It offers 20% off a first home purchase for those under the age of forty. The scheme is limited to new-built homes with a purchase cost of £250,000 or less. Homes in London can be valued at up to £450,000.
Having said that, if you are looking for a mortgage and have bad credit, here are a few expectations you should have compared with someone seeking a loan with better credit;
You will most likely need to use the services of a financial advisor or mortgage broker
Fewer lending institutions will be available to you
Fewer repayment options will be available to you
You are likely to see higher interest rates
You are likely to be required to have a larger deposit.