Looking for a Mortgage with Bad Credit or a Limited Credit History?

It can be difficult to get a mortgage if you have bad credit or limited credit history. But it is not impossible - in this page we’ll give you some information that shows you how you can still get a mortgage, even with bad credit. If you are in the market for a home loan there are steps you can take to help improve your chances of getting approved.

What is a mortgage?

If you want to buy a house but have poor credit or a short credit history, you might be wondering if you can receive a mortgage. The quick answer is that you can obtain a mortgage even with poor credit or a short credit history. Yet there are numerous considerations you should make before submitting a mortgage application.

When compared to someone with strong credit, your interest rate is probably going to be greater. Your monthly payments will also consequently increase. You could be asked to make a bigger down payment than someone with good credit.

It's also important to note that having bad credit or limited credit history doesn't mean that you won't be able to qualify for a mortgage. Lenders will look at your entire financial picture, not just your credit score when determining whether or not to approve your loan.  So if you have other factors working in your favour, like a steady income and employment history, you may still be able to qualify for a mortgage despite having bad credit.

If you're concerned about your ability to get approved for a mortgage because of your bad credit or limited credit history, the best thing you can do is talk to a lender about your options or seek additional advice from an independent, qualified financial advisor. They'll be able to tell you what kind of loans you may qualify for and help you find the best option for your situation.

Who gives out mortgages?

If you're looking to get a mortgage with bad credit in the UK there are a few things you can do to improve your chances of getting approved. 

First, try to find a lender who specialises in bad credit mortgages. There are some lenders out there who are willing to work with people with less-than-perfect credit.

Another option is to get a guarantor for your mortgage. This is someone who agrees to be responsible for the loan if you default on it. Having a guarantor can improve your chances of getting approved for a mortgage as it shows the lender that there is someone else who is financially responsible for the loan.

Finally, make sure that you can document your income and expenses. Lenders will want to see proof that you can afford the mortgage payments, so having documentation such as bank statements and payslips can be helpful. If you have bad credit or limited credit history, taking these steps can improve your chances of getting approved for a mortgage.

Getting a mortgage with bad credit or a limited credit history

A mortgage is a loan that is secured by real estate. Mortgages are used by individuals and businesses to make large purchases of real estate without having to pay the full purchase price upfront.

Mortgages are available from several different sources, including banks, credit unions and online lenders. However, getting a mortgage for bad credit or a limited credit history can be more difficult than getting a mortgage with good credit.

Here are some tips for getting a mortgage with bad credit or limited credit history:

Get your credit score as high as possible before you apply for a mortgage. 

The higher your credit score the better your chances of getting approved for a loan. You can get your free annual credit report from Experian to check your credit score and see if there are any errors that you can correct.

Save up for a larger down payment. 

Lenders in this space tend to only give mortgages with a lower loan to value ratio (in other words, how much your house is worth compared to how much money you are looking for) to people with poor credit history. Therefore, the larger the deposit that you can put down the better the terms you will receive from your lender as well as increasing your chances of being approved for a mortgage.

Find a guarantor who has good credit to co-sign your loan application. 

This way, the lender will consider the guarantor's good credit when evaluating your loan application.

Pros of getting a mortgage with bad credit:

Opportunity for homeownership: Despite past financial mistakes, securing a mortgage means you still have the chance to own a home, providing stability and a potential asset for the future.

Chance to rebuild credit: Taking out a mortgage and making consistent on-time payments can be a significant step towards repairing a damaged credit score.

Specialised lenders: There are specific mortgage lenders for bad credit who understand that financial missteps can happen to anyone. These lenders provide solutions tailored to those with a lower credit score.

Use tools for informed decisions: Leveraging tools like a bad credit mortgage calculator can give potential homeowners a clearer idea of what they might expect in terms of interest rates and monthly payments. One of the most useful tools is to get advice from a specialist advisor who has an understanding of what is available in the market and can provide you with advice relating to the best option for you, given your specific circumstances.

Potential for refinancing: As you gradually improve your credit score, you may qualify for better mortgage rates in the future and opt to refinance for more favourable terms.

Cons of getting a mortgage with bad credit:

Higher interest rates: Those looking to get a mortgage with bad credit often face steeper interest rates than those with impeccable credit. This means you could end up paying considerably more over the life of the loan.

Larger down payment requirement: Lenders might require a heftier initial down payment to offset the risk associated with lending to someone with a bad credit history.

Potential for higher fees: Some mortgages for bad credit UK lenders might impose higher fees, such as origination fees or annual fees, as a way to compensate for the perceived risk.

Limited options: The variety of mortgage options available to those with bad credit might be more limited, restricting flexibility in terms of loan terms and conditions.

Potential for future financial strain: If you haven't addressed the financial habits that led to bad credit in the first place, you might find yourself facing challenges with managing mortgage payments, leading to further financial and credit issues.

Higher insurance premiums: Mortgage insurance, which is often required when a buyer can't put down a significant down payment, might be priced higher for those with poor credit.

Conclusion

It is possible to get a mortgage with bad credit or limited credit history. It may take some time and effort, but there are lenders out there who are willing to provide loans for people in this situation. 

Be sure to thoroughly research the process and shop around for the best loan terms before making your decision. With careful financial planning and patience, you can successfully attain a mortgage despite your current credit score.

We hope this is helpful, however be sure to get qualified advice.  Whilst we provide these hints and tips to support consumers and our members in their search for a mortgage with adverse credit, we recommend that you seek qualified advice from a mortgage advisor before making any applications as any declined application can have a negative effect on your credit file.

It may also be worthwhile seeking help from a FREE debt advice service such as Money Helper. They are a free service set up by the Government to help people make the most of their money.