Living with a poor credit history no longer means being counted out of the running for a quality home loan. Instead, it simply means accepting that you’re in a somewhat unique position. More specifically, a position that means you can forget about the usual mainstream lending channels.
If it makes you feel any better, you’re certainly not in the minority. Comparatively few people manage to keep their credit histories spotless – moderate or severe credit issues are surprisingly common. Not that this helps, but it’s always nice to know you’re not alone in your plight.
As for qualifying for a mortgage with bad credit, the key to success lies in acknowledging your position and understanding the options available. All of which begins by taking a step back and considering the extent to which your credit score has seen better days.
Know Your Credit Score
Simply assuming you know your credit score isn’t the way to go. Either independently or with the help of a broker, the first thing you need to do is give things a good once-over. This is because there may be issues with your credit report that can be remedied (or at least improved) quickly and easily. If not, you’ll at least have a better idea where you stand, when it comes to your eligibility for a mortgage.
Find a Bad Credit Mortgage Lender
If it’s clear your credit score isn’t going to impress mainstream banks and lenders, you’ll need to focus your attention elsewhere. Rather than working with a bad credit mortgage lender, it’s far better to find an independent broker to advise you.
The benefits of working with a broker are not to be underestimated. Along with an independent expert to advise on your current situation, you also gain access to a specialist panel of independent lenders. More specifically, lenders that don’t appear on the average UK High Street, which specialise in subprime applications like yours.
Your broker will match your requirements and your financial situation to your ideal lender and mortgage. All without putting your credit score at risk of further harm, as would be the case when applying with a major lender directly.
Save Up for a Large Deposit
More often than not, you will be expected to provide a sizeable down payment to qualify for a bad credit mortgage. Every lender has their own unique policy, which may to some extent be influenced by the current financial situation of the borrower. Nevertheless, the larger the deposit you’re able to offer, the more likely you are to qualify and be offered a good deal.
As a rule of thumb, you can expect to be asked for approximately 20% – sometimes 15%, sometimes 25%. If you have the money available (or the time to save up), it’s definitely worth considering putting a larger deposit down on the property you intend to purchase. In any case, it’s technically an investment, rather than a payment – you’re simply paying off the balance on your property as fast as you possibly can.
Plan for Extra Fees
Last but not least, subprime lenders may also attach additional costs and levies to home loans. Examples of which include arrangement fees, administration fees and processing fees, charged at either a fixed rate or a percentage of the total loan amount. This can significantly increase the overall borrowing costs for the loan, and is one of the reasons it pays to work with an independent broker.
On your behalf, a qualified mortgage broker can link you with a responsible lender and help minimise (or even eliminate) these charges. If you’d prefer to get the best possible deal with an imperfect credit score, independent broker support is a must.