A Guide to Bad Credit Mortgages

Getting a mortgage with bad credit isn’t impossible, but it isn’t easy. Find out all you need to know about bad credit mortgages, right here.

When it comes to financial products, credit is everything. Your credit score will dictate whether you can actually qualify for financial products like credit cards, loans and mortgages too. So, what happens if your credit score is less than impressive? For those with bad credit, it can feel almost impossible to find yourself a fair mortgage deal. However, it’s not impossible.

In this blog we look into what a bad credit mortgage is, and if you can actually get one. We’ll be covering everything from your credit score, how it relates to your mortgage and what your options may be going forward. To learn all about bad credit mortgages, read on!

Can you get a mortgage with bad credit?

Whilst it may sound like it’s a thing, it actually isn’t. Whilst you may be able to get a mortgage with bad credit, there is no actual ‘bad credit mortgage’. The term relates to your financial situation and what options are out there if you have poor credit. There are different kinds of mortgages yes, but for bad credit you may find your lender will either give you a higher interest rate or not approve your application at all. Sure, there are guarantor mortgages (which we’ll get into), but in terms of having bad credit and getting a mortgage, your options look pretty slim.

Why is my credit bad?

There’s loads of factors that can contribute to a poor credit score. Whether it’s missing or repaying credit late or declaring bankruptcy, sometimes your credit score slowly declines until you’re unable to land yourself a credit card, loan or even a mortgage. Sometimes, it can be due to an error on your credit report or being financially linked to someone that has bad credit – most of the time, these mistakes can be remedied by credit agencies. If you can prove that the error is fraud or false, then your credit may improve. However, most of the time bad credit is linked to making late repayments or missing them on financial products – be it bills, loans or credit cards. However, if you’ve never taken out a form of credit (mobile phone contract or a loan for example), your credit score is non-existent. In the eyes of lenders, this is considered to be the same as having bad credit. Having bad or no credit makes you ‘unreliable’ in the eyes of lenders, because it shows that you either have never had credit or cannot make repayments on time.

What does credit mean for my mortgage?

As we’ve said, having bad credit means it will be difficult to find a mortgage – difficult, but not impossible. Your credit establishes what you’re like as a borrower, and lenders (especially mortgage lenders) need to know you’ll be able to make the repayments on time, afford them and consistently pay them over the next 25-30 years. Whilst some lenders may consider you for a mortgage, they may increase the interest rate that you’re charged on top of your mortgage. Or lenders may deny your application completely, suggesting you improve your credit before you reapply. However, there is one option that can still be used.

Guarantor Mortgages for Bad Credit

One method that is becoming increasingly popular is using a guarantor for your mortgage. These mortgages allow those with bad credit to land themselves one. The good thing about guarantor mortgages is that they’re not reliant on your credit score, deposit or income. How can this be? Well, it’s because you’ll need to put a guarantor forward with your application. They sign to agree that should you be unable to may any repayments on your mortgage, your guarantor will cover the costs for you.

Most guarantor mortgages ask for parents or grandparents to be your guarantor. Your guarantor will need to prove they have income, own their own home as well as have a good credit history. The risk of repossession for both your own and your guarantor’s home is apparent. If you fail to make repayments, as with any mortgage, your home could be repossessed. However, if the full amount is not repaid after your home, your guarantor’s home could be at risk. It’s important for you to seek independent financial advice and for your guarantor to seek legal advice before anyone signs anything. If this doesn’t sound like the route you want to go down, let’s look at what can be done to improve your credit.

Improving your Credit

One way to make sure that you’re approved for mortgages in the future is to start improving your credit. There’s a few easy things that can be done, but some will take work and investment in order to ensure that you credit slowly improves. Registering on the electoral register is a simple thing that can be done to improve your credit score, as well as remaining at an address for over a year. More difficult tasks come when you’re settling debts.

Debt can negatively impact your credit score, so it’s essential to start making movements to clear any outstanding debt you may have. Also, monitor your credit report. Look for any errors, fraudulent activity or any bad financial links to people – it can go a long way to improve your credit. Improving your credit for the future is one way to widen your mortgage options. It gives you more time to save a larger deposit as well.

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