How to Get a Mortgage With Bad Credit

Is it all doom-and-gloom for people with bad credit who wish to own a home? The answer is no! It’s not impossible to get a mortgage with bad credit, but it may be more difficult. Learn how to buy a home with bad credit:

Can I Get a Mortgage with Bad Credit?

Yes. It is possible to get a mortgage with bad credit, but it may be more difficult.

While having a good credit score is certainly helpful during the application process for obtaining a mortgage, it’s not the only factor. Lenders take a look at the entire financial picture on applications and take into account positive financial changes when making their decisions; however, certain negative marks on your credit score such as county court judgments (CCJs), individual voluntary arrangements (IVAs) or bankruptcies can make it challenging.

How to Get a Mortgage With Bad Credit

Become a member of a local credit union: It’s common for credit unions to offer flexible lending terms and provide tools for building credit. They are generally known to be a good option for borrowers with fair to poor credit.

Offer a higher deposit: It can work in your favour to offer a higher deposit if you have access to the necessary funds. In some cases, this may mean considering cheaper properties for purchase.

Be forthcoming: Lenders will conduct thorough searches during the application process, and trying to hide bad credit history will not be viewed in a positive light. Lenders may appreciate a proactive explanation of how you got into financial trouble and what has changed since then.

Emphasise positive financial changes: Lenders are more likely to approve a mortgage application when you can prove stable income. Use the opportunity to bring positive changes in your finances to light during the application process.

Allow for more time to pass: Credit reports typically contain data trailing the past 6 years and negative marks on your record could be seen as less serious over time. This is especially relevant if your financial situation has improved.

Take steps to improve your credit history: Establishing a pattern of consistent payments and responsible credit usage can go a long way when applying for a home mortgage. Even an increase of just a few points can mean all the difference in being offered a better interest rate.

Listen: Property Strategist Podcast About Credit & Buying Property

In the latest episode of The Property Strategist, the hosts discuss ways to buy a house for less money and the importance of creditworthiness in your journey to home ownership. It’s not uncommon for people to begin their property search and only to find out their credit score isn’t what they thought it was.

Listen here

Is it Better to Get a Mortgage with Bad Credit or Wait Until My Credit Score is Improved?

Even though it is technically possible to get a mortgage with poor credit history, another option is to wait to begin the home buying process and to shift your focus to improving your credit score. Doing so will increase your chances of getting accepted for a more conventional mortgage with better interest rates.

Some of the benefits of homeownership are clear: no rent increases, potential to make money and more freedom to do as you wish. But the truth is, renting makes more sense for some people. Understanding the pros and cons of each scenario is critical to choosing the option that best aligns with your future goals.

Have a look at a few of the pros and cons of getting a mortgage with bad credit:

Pros:

Enjoy the benefits of homeownership: taking out a bad credit mortgage instead of waiting until a later date will allow you to get started on your journey to homeownership sooner rather than later.
Build your credit: if a mortgage is managed correctly and payments are made on time, it can help to lift your credit score.

Cons:

Higher interest rates: you'll often have to pay higher interest rates on a mortgage if you have a poor credit history—resulting in paying more in interest over the course of the loan.
Larger initial deposit: you may have to pay a higher deposit to successfully get a mortgage with bad credit.

Build Your Credit Score With Pave

The Pave app credit builder actively works with you to help you build your credit score. We offer credit building insights that are targeted, actionable and unique to you, and report your good behaviour to help build your credit health. We partner with Experian, Equifax and TransUnion to improve your credit history through your monthly membership fee of £9/month. There's no magic bullet to improve your credit score overnight but Pave credit builder builds credit the proper way.

Pave has been voted the Best Credit Building Product in 2021 by customers in the Consumer Credit Awards and was voted the Best New Personal Finance App 2021 by Moneynet.

Additional Resources