Sometimes, financial problems catch you out and before you know it, you have bad credit. This might be missed payments, overdue amounts or even defaults. Sometimes the problem has escalated, and you are on a debt management plan or even had a CCJ. So can you get a mortgage with bad credit?
What is bad credit?
Bad credit is a general term that relates to your credit record, an electronic document that contains all of your financial histories. Lenders can view it if you are applying for a loan, credit card or a mortgage. If your credit record contains too many debt problems, you are termed as having bad credit.
However, this doesn’t mean that getting a mortgage is impossible. According to Family Money, there are lots of different lenders out there and a good number of them will consider different bad credit situations to help you get a mortgage. Also, there are multiple ways in which you can get a mortgage.
Bad credit mortgage basics
It is worth knowing that you will find the number of lenders available with bad credit to be lower than with good credit. High street banks, for example, often don’t offer their products to people with bad credit. But there are also plenty of lenders who will consider different situations.
It is also worth noting that you might find you don’t get the lowest interest rate available. Again, that’s because the lowest rates tend to go to the good credit record people. But over time, you can repair your credit record and remortgage to get a better rate.
You may need a higher than average deposit for some lenders. The minimum deposit, in general, is 5% as lenders can no longer offer a 100% mortgage. But if you have bad credit, the lender may want 10-15% deposit to help make the risk better for them.
Finding a bad credit mortgage
One of the easiest ways to find a bad credit mortgage is to work with a broker. These are experts who deal with a whole range of mortgage lenders and know which ones will consider what situations. This will save you a lot of time and heartache asking lenders if they will help, only to have them turn you down. A broker will know which lenders will consider your situation and can approach them first.
It is also worth remembering that there are costs involved with getting a mortgage that you need to account for. Some brokers may charge a fee while others are paid by the lender – they will tell you how this works when they first talk to you. There may also be a fee to set up the mortgage but again, they will tell you about this at the start, so you understand.
Don’t forget if you are moving house, there are costs such as removals men as well as the cost of solicitors to draw up the paperwork and a surveyor may be needed to inspect the house. So make sure you have a plan to cover these costs before you start looking at mortgages.
Improving your credit record
If you still find you can’t get a mortgage or can’t afford the payments due to higher interest, it might be worth taking some time to improve your credit record before trying again. The key to doing this is to keep on top of your borrowing. Payments need to be made on time and you need to stay within any credit limits or overdrafts.
Avoid applying for too much credit and make sure you keep up to date with anything you already have. Each payment made for existing credit that is on time and in full helps to build that credit score!