Bad Credit Mortgage
Bad credit can happen to anyone at any time. You are classed as having
bad credit if you experience any of the following:
Ø A credit score of less than 620
Ø Bankruptcy in the last 3 years
Ø Foreclosure in the last 4 years
Ø Collection accounts, judgements or liens
Ø 30, 60 or 90 day lates within the last 2 years
Bad credit can be caused by arrears, CCJs (County Court Judgements),
defaults, bankruptcy – even late payments on household bills.
People with bad credit (also referred to as adverse credit) are
considered a risk by lenders and some might find it difficult to
be approved for a mortgage.
However with an estimated 1 in 4 UK borrowers having bad credit,
many mortgage lenders understand that bad credit happens and are
willing to offer specially designed bad credit mortgages to people
with low credit scores.
Bad credit mortgages (also referred to as sub prime mortgages)
are similar to regular mortgages in the sense you have the option
to choose between a fixed rate mortgage (where the interest rate
is fixed/stays the same for the duration of the loan period) or
a Adjustable Rate Mortgage (often referred to as ARM) which would
mean your interest rates may increase/decrease according to the
current market trends.
Bad credit mortgages do have advantages that conventional mortgages
don’t. The main advantage is that they are easier to qualify
for, even with a bad credit history. They also allow you to build
wealth with your home purchase and have fewer hurdles, such as not
requiring private mortgage insurance (PMI). You may also find that
sub prime lenders are more flexible with their requirements. However,
bad credit mortgages have a higher interest rate compared to conventional
mortgages because in the eyes of the lender, a borrower with bad
credit is seen as a financial risk. Because of this the amounts
available under bad credit mortgages will not be as large as those
available with a regular mortgage.
You may be able to qualify for a better rate if you try to fix
your credit problems beforehand by making all your current payments
on time to help your credit score. Keep your number of credit enquiries
as few as possible as too many enquiries can hurt your credit score.
If you want to buy a house, don’t apply for any credit cards,
store cards, auto loans or any other type of loan if you can avoid
it.
Larger down payments/deposits increase your chance of getting a
mortgage and will also help you qualify for a better rate. The deposits
needed on a bad credit mortgage is often higher than that of a normal
mortgage as there is more risk involved for the lender but a large
deposit shows the borrower is committed to the mortgage. Bear in
mind that if you fail to make your repayments you may lose your
deposit and the lender can repossess your property and sell it to
recover his amount.
Don’t worry about getting approved or not for a bad credit
mortgage. Instead focus on getting the best rates and terms by taking
the time to compare quotes. The most important thing is persistence.
Mortgage lenders generally don’t give much importance to bad
credit however your cash assets, income and credit score can be
less than favourable but you can still get a mortgage. Bad credit
mortgages give borrowers a second chance to improve their credit.
Paying on time will give you a positive remark on your credit file
and make you more eligible for a better mortgage in the future.
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