Bad debt can haunt you for years, but it doesn’t necessarily mean you won’t be able to buy a home. If you’re dreaming of owning your own place, don’t give up hope just yet.
Here we’ve put together a guide below so you can better grasp the process of getting a guaranteed loan with bad credit. Once you’ve finished reading through it, our best advice is to speak with a professional who specialises in helping people in your position.
What can lead to bad credit?
Lenders may consider some factors when determining whether or not to give you a loan, but they won’t always take into account every factor. For example, if you miss one payment for a mobile phone bill, they might be willing to overlook that fact.
If you miss one utility bill, it won’t be too big of a deal either. However, missing multiple bills at once could be a sign of financial trouble. Similarly, missing a single monthly payment on a loan would not be considered a major issue, but missing several payments at once might indicate serious financial troubles.
Decrees, trust documents and bankruptcies all carry lasting, serious consequences to your credit score and can provide the biggest obstacles to obtaining a loan. However, qualifying for a loan in these situations is not out of reach.
You may want to check out some of these free online services to get an idea of your current financial standing. They include Experian and Clear Scores.
Can I qualify for a mortgage even if I have bad credit?
Yes, you can buy a home with bad credit. You may not be able to borrow as much money as someone who has good credit, but you can still purchase a home if you have enough equity in your current property. Your lender will require proof of income and assets, such as bank statements showing consistent monthly payments, utility bills, tax returns and any other documents that show your ability to make regular payments.
Most high street bank branches are stricter than a specialist or smaller lenders. Building society branches are usually less stringent than high street ones.
There are several things you can do to improve your chances of getting approved for a mortgage:
- get yourself a guarantor if you can – this means if you can’t afford to repay the loan, your guarantor will need to step up and cover any shortfall. If he/she can’t, your house could be repossessed
- you can have a family member or friend gift you the deposit for your home – this isn’t a loan, but there’s nothing stopping you from giving the cash back at some point down the road
- it makes sense to consider both your and your partner’s scores when shopping for a mortgage
- if you have an explanation for blackened credits, you’ll be treated more leniently if you’ve proven your current circumstances show improvement
- be honest at all times – hiding negative factors from banks is a major red flag in their eyes
- if you want to repair your credit, you need to put in the effort (we’ll discuss ways to achieve this later in the article)
If I have a bad credit score, can I remortgage?
Yes, there are some things you can do to improve your chances of success. However, they’re not quite as simple as they seem.
If you have a poor credit score but some years have gone by since your last loan, it might be worth considering refinancing so you can save some money.
Before changing mortgage products, be sure to consider the cost of remortgaging.
If you get a mortgage now vs if you wait until later
You may want to consider whether waiting to improve your credit scores before applying for a loan makes sense. If so, you won’t need to spend as much time waiting to get approved for a loan. However, you might not be able to afford to live without a loan for an extended period of time.
As Scottish real estate prices continue to rise, you may be able to buy a house for less than you would if you waited a few years. However, this means having to pay a higher deposit and paying more in mortgage payments. So, you may end up spending more money overall.
However, waiting means you have time to save up for a larger down payment. Remember that fixing your credit score usually requires some time – it might take several months before any improvements you’ve made appear on a credit report.
If you want to get a good deal on a loan, then you need to go through a reputable lender who knows their stuff.
How can I get better credit scores?
If you decide to wait until you’ve saved enough money to put down a larger deposit, here are some ways you can improve your chances of getting approved:
- register to vote
- close any credit card accounts you don’t need anymore
- make sure you pay your utility bill on time
- don’t miss payments for loans and bank cards
- set up automatic payments for your bills so they’re always paid on time
- if you’ve been through a break-up, request a notice of disassociating yourself from their financial records from the credit agencies
Finding a good mortgage broker who helps people with bad or no financial history
We’ve already mentioned that finding a good lender is one of the most important things you need to consider when applying for an adverse credit loan. However, if you’re looking for a better deal than you could get from a bank, then you might want to look into using a specialist lender instead. A specialist lender has access to a wider range and type of loans than banks, so they may be able to offer you a better deal.
