Your wish to buy a new home will be fulfilled through a right mortgage deal but only when you are able to make 20% down payment and you possess an excellent credit score from past. These are like the golden features you have because every lender would like to have such sort of assurance from the borrowers’ end. In the wide marketplace of the United Kingdom (UK), majority of the mortgage providers are financing those with good credit scores so that they can easily utilise the money to accomplish their dream of home ownership.
Wait, what about people with bad credit scores? Do they have any chances to shop for a mortgage with bad credit?
But before answering this question, we would like to discuss first, why lenders care so much about the credit scores?
The credit scores of the borrowers are the genuine indication of their financial creditworthiness that most of the loan providers take into their consideration. On the basis of that, they analyse whether a particular borrower is eligible to avail mortgage or not. If they have a good credit score, lenders can analyse that repayments can be done on time. However, those who have poor credit history, the providers are always in lots of sceptical.
Moreover, the credit scores ensure that you have handled past credit very well and you can follow all the obligations comfortably. Although, situation will become difficult if have made late payments or miss them in the past. Individuals with issues like bankruptcy or County Court Judgement (CCJ) are considered as the risky borrowers, as the lenders are here to lend not losing their money.
Even if your present situation is good, your bad past will make an impact. This may also happen to those with above 750 range where lenders are interested to know their past credit performance.
What Prospects Are for People with Bad Credit Scores?
People, who the first-time home buyers or those are looking for another home to purchase, will face difficulties in getting the mortgage if they have bad credit history. If we take the reference from Experian, we can analyse your chances of getting approval as such:
|Credit Score Level||Chances of Mortgage|
|Excellent (961-999)||Get best mortgage deal on low interest rates|
|Good (881-960)||Bright chances of getting mortgage|
|Fair (721-880)||Avail mortgage on affordable interest rates|
|Poor (561-720)||Mortgage available on high interest rates|
|Very Poor (0-560)||Not many chances of mortgage or if available, then on very high interest rates|
Approaching the mainstream mortgage lenders may not work in your favour if you have the less-than-perfect credit score. Alternatively, you can apply from the direct lenders as they seem interested to accept your request on some specific conditions.
Despite the fact that you have the alternative of private lenders or mortgage brokers or advisor like ShineMortgages.co.uk in UK to avail a mortgage deal, it would be better if you concentrate on improving your credit score first before indulging in relevant market. Pay all your debts on time, pay your bills before the due date because all those count whenever a lender analyses your credit profile. It is an important practice because remember your credit score also define what sort of interest rate you will get on your mortgage deal.
There are two factors that define the impact of your bad credit score:
- Type of Mortgage for which you are eligible
- Actual price of a loan including interest rate
How to Qualify for Mortgage with Bad Credit Score?
In the era modern day lending, everyone has the opportunity to avail financial products irrespective of credit scores. However, these are the ways through which you can improve your chances to be qualified for a mortgage despite poor credit ratings:
- The best way to convince the lender is to make the larger down payment that should be at least 20%. Although some lenders may agree upon to 15% but in order to save money, it would be better to have at least 20% as the down payment.
- Manage your debt-to-income ratio because that will help you to monitor the overall expenses of a mortgage deal. Rectify all previous debts as soon as possible and then go ahead for a home loan.
- It is very important to be friendly with your lender. Yes, it is a nice trick to win its trust. Discuss your credit history and what the possible circumstances were through which you have that score. Follow the good documentation practice during the process and be sincere in following all the obligations involved.
These are the best general ways to enhance your mortgage chances as being a poor credit holder. Still, the best chance is pending to be discussed here. Let’s discuss here.
The Role of A Good Monthly Income
Yes, your sufficient monthly income to bear the cost of mortgage deal is a good chance of getting the approval despite having a bad credit score. If you have a good income and the lender feels that you can easily manage the repayments from it without disturbing your family budget, then there should not be any problem in receiving the lender’s approval.
Show the lender your job security that you won’t be going to leave your job soon and you can easily manage the monthly instalments from it. However, remember that you should have a full-time job because self-employment usually has instable income flow that may not convince the lender. Besides that, show your past employment salary proofs, bank statement if you are getting online transfer of income from your company, and latest appointment letter or experience letter from your current employer.
As long as you are earning, lenders have no objection of receiving your mortgage application despite having a poor credit history. Furthermore, you can provide the hard copies of above mentioned documents or just send scanned copies through your valid email-id. In the end, you may not have a perfect record of your credit scores but if you do a proper research, find out the right lender and earning a good salary, then buying a dream home through the way of mortgage will become a reality soon.