Buying a home is the significant investment and a significant milestone for many people. However, it can be challenging to secure a mortgage if you have bad credit history. Bad credit can result from missed payments, defaults, or bankruptcy. While having bad credit can make it harder to get a mortgage, it does not mean that it is impossible.
The good news is that some lenders are willing to offer mortgages to people with bad credit. It may be helpful to consult with a mortgage advisor who can provide guidance on the best options for your specific situation. In this article, we will explore the options available for getting a mortgage with bad credit.
Specialist lenders are financial institutions that offer mortgages to people with bad credit. These lenders have a more flexible approach to lending and are willing to consider people with a poor credit history. Specialist lenders can offer a range of products, including fixed-rate mortgages, variable-rate mortgages, and buy-to-let mortgages.
The interest rates offered by specialist lenders are often higher than those offered by traditional lenders. However, the rates can still be competitive if you have a significant deposit or equity in your home. Specialist lenders will also assess your affordability based on your current financial situation and not just your credit history.
Guarantor Mortgages
If you have bad credit history, you can consider a guarantor mortgage. A guarantor mortgage involves having someone else (usually a family member) act as a guarantor for your mortgage. The guarantor will responsible for paying the mortgage if you default on the repayments.
Guarantor mortgages can be a good option for people with bad credit, as they provide additional security for the lender. However, it’s essential to ensure that the guarantor understands the risks involved and can afford to make the repayments if needed.
Joint Mortgages
Another option for getting a mortgage with bad credit is a joint mortgage. A joint mortgage involves applying for a mortgage with someone else, usually a partner or family member. Joint mortgages can help improve your chances of getting a mortgage, as the lender will consider both applicants’ credit history and income.
It is important to note that joint mortgages come with some risks. If one person is unable to make the repayments, the other person will be responsible for paying the full amount. It is essential to ensure that both parties can afford the mortgage and understand the risks involved before applying.
Government Schemes
The UK government offers several schemes that can help people with bad credit get a mortgage. These schemes include:
- Help To Buy: Equity Loan – This scheme provides a loan of up to 20% (40% in London) of the purchase price of a new-build home. The loan is interest-free for first five years and can help reduce the deposit needed.
- Shared Ownership – This scheme allows buying a share (between 25% and 75%) of a property and pay rent on the remaining share. Shared ownership can be a good option if you cannot afford to buy a property outright.
- Right To Buy – This scheme allows tenants of council or housing association properties to buy their homes at a discounted price.
While these schemes can be helpful, they are not available to everyone and come with specific eligibility criteria. It is essential to research the schemes thoroughly before applying and ensure that you meet the requirements.
Improving Your Credit Score
Finally, it is worth considering ways to improve your credit score before applying for mortgage. Improving your credit score can help you access more competitive interest rates and increase your chances of being approved for a mortgage.
Ways to improve your credit score include:
- Paying off any outstanding debts
- Registering on the electoral roll
- Checking for errors on your credit report and correcting them
- Using credit responsibly and paying bills on time
Improving your credit score can take time, but it can be worth the effort in the long run. Even small improvements to your credit score can help you access better mortgage rates and terms.
It is also essential to do your research and compare mortgage options from different lenders. The interest rates, fees, and eligibility criteria can vary significantly between lenders, and it is worth taking the time to find the best option for your circumstances.