How can you get a mortgage if you have poor credit?
If you're thinking about buying your first home, moving house or you want to remortgage, you might be worried about what happens if you have a poor credit rating. Learn more about how to repair your credit score by reading our guide that outlines the steps you can take.
What is considered bad credit?
A credit score is a number that indicates the likelihood that an individual will repay a debt. The score is based on the information contained in a person's credit report, which includes payment history, outstanding loans, open accounts and other factors. Credit scores are used by lenders to evaluate the risk of granting credit to an individual or business.
What are the effects of bad credit on a mortgage?
When banks and mortgage lenders evaluate whether to approve a mortgage application, they take a number of factors into account. A bad credit rating can lead to rejection. If missed or late payments appear on your credit report, this is often considered a red flag by lenders. However, the impact of late or missed payment markers decreases with time; they will be completely removed from your report after 6 years have passed. Some lenders might be willing to accept someone with missed payments from many years ago; therefore it might be worth waiting longer before buying a home.
If you are planning to apply for a mortgage, it is important to check your credit report first and correct any errors. Your entire report should be reviewed and not just your score. If you have bad credit, many credit reference agencies can offer advice on how to improve it.
What is the minimum credit score required to buy a house?
Different mortgage lenders have different requirements for applicants. Lenders look at a range of factors when assessing applications, including the applicant's age, income, assets and liabilities. They will also consider affordability and whether you are in a good position to keep up with repayments. There is no minimum credit score that you need to achieve before applying for a mortgage.
Can a mortgage broker help you overcome credit problems?
If you are concerned about your credit history affecting your ability to obtain a mortgage, using a broker who can access the whole of the market can be beneficial. Lenders have different lending criteria for their mortgages, and a broker will be able to point out those most likely to accept you.
It is advisable to avoid making multiple applications for credit and only apply for loans with lenders where you have a good chance of being given an offer. It is also important to choose a broker that only charges fees on successful completion of your mortgage application.
Can I obtain a joint mortgage with bad credit?
If you are applying for a mortgage or any other type of loan with someone who has poor credit, your credit rating could be affected. Any joint accounts, loans or credit cards shared with a person whose credit is bad will also affect your credit score.
A joint mortgage when one applicant has bad credit may result in a higher interest rate, increased deposit requirements or denial of the loan.
Lenders will consider your financial situation as a couple, especially if you are married. As long as you and your partner do not have any recent credit issues, you should have a good chance of finding a lender prepared to give you a mortgage.
Can I get a shared ownership mortgage with bad credit?
Shared ownership mortgages allow you to buy a house or flat with a smaller deposit than is usually required. This is because part of the property is owned by a housing association and you pay rent on this share of the home.
If you are approved for a mortgage on a property and your credit improves, you may be able to remortgage for a larger share or the full value of the property. This is called "staircasing."
How can you improve your credit score?
When you're saving up for a mortgage or remortgaging, there are steps you can take to increase your credit score. These include making positive changes that could take up to six months to appear on your credit report so the sooner you act the better.
If you pay rent on time each month, you can ask your landlord to track your payments to Experian Rental Exchange. If you miss payments or are late paying, it could have a negative effect on your credit score.
What else do I need to do to apply for a mortgage?
It is important to remember that your credit score, report and income are not the only factors lenders will consider when deciding whether or not to give you a mortgage. Use a mortgage affordability calculator to see what size mortgage you could get.
Lenders look at your income and expenditure before deciding whether you can afford a mortgage. You will usually have to provide three or four months' worth of bank statements so that they can check that you will be able to meet your monthly payments.
Before you apply for a mortgage, try to clear your debts, cut back on spending and avoid opening new lines of credit or using your overdraft. This will make it easier to get a mortgage in the long run because your bank or mortgage lender can see that you are responsible with money.