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Low Credit Score is Affecting Me Getting a Mortgage

One of the most major financial transactions in your life will be a home purchase. A home is a major investment. Your poor credit can have an impact on the terms of the mortgage. However, it is possible to buy the home of your dreams with bad credit

Having a low credit score may damage your chances of being able to get credit, in whatever possible situation or terms. This can cost you thousands of pounds in added interest over the life of any loan or mortgage that you have applied for. Lenders will certainly always review your credit report, especially if you apply for loans or mortgages. This will help them gauge how you manage your finances by taking a look at your credit history and your credit score. If you have a low credit score, this can affect your ability to qualify for a mortgage, including the terms of the loan, as well as the interest rate.

Credit scores are a tool that helps the lender to predict another person’s likelihood of certain credit behaviours. Negative factors that contribute to the taking away of points within the credit score include late payments, maxed-out credit cards, and bankruptcies. In contrast, solid payment history and prudent use of available credit add points to a person’s score.

Even though having a low credit score cannot necessarily help you in your mortgage application, you should not be disheartened since we can see that plenty of mortgages are being granted to people with all levels of credit rating, perhaps not as easy and as beneficial as with people with better credit scores. Bad credit mortgages are a common example.

What Can You Do to Improve your Chances of Getting a Mortgage?

  1. Check your Credit Report

The first step to take would be to check your Credit Report. This essentially means checking your credit rating, and by doing so, you can find exactly how bad your credit is. You should immediately contact a credit report agency in case you find anything that is incorrect. In the UK, lenders, or any organisation checking your Credit Report information, will use its own scorecard and interpretation of the data to come to a decision.

  1. Avoid Late Payments

One way you could help your situation is by trying to improve your credit score before you even attempt to apply for a mortgage. You can do this by avoiding any recent late payments since these can affect your credit score more than old late payments. You can also improve your credit score by making sure that you pay on time or early, putting you in a much better position to apply for a mortgage. However, credit scores are just a fraction of what mortgage lenders look into when deciding on whether they should grant you the loan or not.

  1. Put a Bigger Down Payment

Another step you can take in order to secure a low credit score mortgage is to save up for a down payment. If you can save between 5-10% of the home value as a down payment, the lenders will be more likely to give you a loan. Putting a larger down payment reduces the risk that lenders bear on the loans. The case may also be that you are approved for a lower interest loan as well.

  1. Consider a Longer Mortgage

When evaluating mortgage options, the difference of just one percentage point in interest can mean significant additional costs over the life of the mortgage as well as in the size of the monthly mortgage payment. In some cases, in order to keep your payment terms within your budget, you might have to accept a mortgage with longer payback terms. A mortgage with a higher interest rate may be made affordable by paying it back in forty years.

  1. Find a Guarantor

You should also see if you can agree with someone with good credit to co-sign the loan. A guarantor is someone that agrees to cover the mortgage if you fail to miss payments or default. This gives the lenders more security when they give you a loan, as they take into consideration the guarantor’s credit rating as well.

  1. Cheaper Alternatives

You can also try to choose a home that is not valued that highly in order to improve your chances of getting the mortgage that you have applied for. You can reassure the mortgage lenders that most of your income will go into the payment of the debt. You can also find cheap real estate loans with flexible repayment terms. Applying for discounted or capped rate mortgages is a good option. Many private banks, savings and mortgage companies provide these types of loans. The benefit of these loans is that they offer a discounted rate on the mortgage repayment for a set period of time, either variable or fixed.

  1. Credit Repair Programmes

Another good option is to download credit repair programmes. They are fast, effective, efficient and cheap when you compare them to expensive credit repair services, as it can be installed in your computer. The software will easily identify which items can be fixed and instantly improve low credit scores.

  1. Compare Different Lenders

Before applying for a low credit score mortgage, make sure that you look around at different lenders that are available. It is essential to see if you can get a better interest rate by going online and contrasting the different lenders available.

All Things Considered…

Applying for a mortgage with low credit scores is not the most ideal situation, especially since lenders use these to gauge your ability to pay your debt, which in turn influences their decision to whether approve or deny your mortgage application. However, this article has shown you the different steps you can take in order to put you in a much better position prior to your mortgage application.

Are you having issues with your credit score affecting you getting a mortgage? Do you need valuable online mortgage advice? Please contact Independent Mortgage Brokers.

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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