If you’ve got a limited, bad or absolutely zero credit rating but are hoping to own your own home in the near future then you may be worrying that it seems to be just an impossible dream.
That’s not the case though, as there are many ways those with a bad credit score can still take out a mortgage.
A credit score, report or rating is simply a record of your financial history that takes in many aspects of your financial history. Even if you think you have a top credit rating, that isn’t always a guarantee that you’ll easily get a mortgage as individual lenders will have their own criteria.
Here’s how to at least boost your chances though.
Use Sub-prime/Adverse Credit Mortgages
These are two types of mortgages designed specifically so those with poor credit ratings can buy their own home. Sub-prime mortgages can charge interest rates above the prime lending rate as the borrowers present a higher risk due to their poor credit history.
There are various types of sub-prime mortgages available, such as an adjustable rate mortgage which charges a fixed interest rate which then converts to a floating rate.
Sub-prime and adverse credit mortgages work in the same way as standard mortgages except they will charge higher interest rates. There was a dip after the global financial crash of the number offered but with the recovery there are now more available.
Check and Amend Credit Mistakes
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If you get turned down for a mortgage due to a poor credit rating it is important to check that it is not just down to a few small mistakes. Ensure that you are on the electoral roll, as this can seriously affect your rating and is easily amended. Save time by making all the necessary checks before approaching a lender for a mortgage.
Be sure to keep records including payslips and bank statements, as not only will lenders want to see them but they can disprove any mistakes on your credit report. You can legally view a copy of your credit report for just £2, which is worth doing before approaching a mortgage lender.
Fund the Higher Deposit
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For anyone stuck with a bad credit rating you will inevitably have to pay a higher deposit for a mortgage. This can make it even harder to gather a large enough amount to cover the deposit but there are a few ways.
With a poor credit rating, using a guarantor loan is one possible option to help cover the initial deposit and successfully take out a mortgage.
This is an unsecured loan whereby you have someone with a good credit rating to act as a guarantor if it cannot be repaid. Otherwise options include borrowing from family members or simply waiting until you can save up enough to afford the deposit outright.
Shopping around for mortgages that cater to those with poor credit ratings with the best interest rates will be worth your while too.
Improve Your Credit Score
Those with a bad credit rating and who have enough time before hoping to take out a mortgage should attempt to improve their credit score to avoid being lumped with a larger deposit. This can be done by:
- Regularly using and paying off a credit card
- Closing excess credit cards which are unused
- Paying off any current debts and bills on time
- Staying in the same home and job until a mortgage is secured
All of these methods should help in some way to get a mortgage if you have a limited, poor or no credit score. Just ensure that you will be able to meet all future repayments on it before fully committing.
Main Image Source = By Ruben Holthuijsen