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Bad Credit And Repayment

Bad credit mortgage

Have you missed any credit payment in the past? Are you worried about your mortgage repayment? Is bad credit getting in the way of realising your dreams? If your answer to any of these questions is ‘yes’ then you can reach out to us and we’ll help you get through this cycle. Our experts can help you understand credit and mortgage cycles between various lenders.

What is bad credit mortgage?

Much like regular mortgages, markets have seen a slew of bad credit mortgages taken by people. Bad credit mortgages are likely to come with high interest rates and a low limit on the final amount that you can borrow. It is possible for you to get a mortgage with bad credit, but you’ll possibly pay higher interest rates and there may be a need for you to come up with a larger deposit.

Remember that there are mortgages designed specifically for people with poor credit, and there are lenders who specialise in offering these. These are common known as bad credit mortgages, adverse credit mortgages, or sub-prime mortgages.

How to get a bad credit mortgage in 2020?

Typically, a bad credit score means that you will not get a loan, or you may get an expensive loan with a higher interest rate. In this scenario, many of us ask ourselves ‘can I get a mortgage if I have bad credit?

With certain kinds of loan programmes and lenders, it may be possible. This can be done if you can make a big down payment or prove large cash reserves and if you have a low debt-to-income ratio. Give us a call today and we’ll help you get a mortgage.

How can I get a mortgage with a bad credit?

If this question has been hounding you, let us tell you that we have helped many get mortgages despite bad credit. Here is what we suggest you do:

Give it time:

Any blemishes on your credit record could be seen as less serious over a period of time. If your financial situation has improved, we suggest you take some time to let the credit record look much better.

Consider your partner’s debt:

If you are buying with a partner, it will mean that your partner’s credit history gets taken into account as well as yours. If your partner has a good credit score, then it will certainly improve your chances of getting a mortgage together.

Repair your credit history:

You will need to establish a pattern of consistent payments. If you are able to make payments on time, it shows that you follow a responsible credit usage pattern.

Present as a lower risk:

You can apply for a mortgage when you have a stable income and try to offer a high deposit amount. This is one way to get a mortgage that you need.

Be honest:

It is imperative that you are honest when you need a mortgage. Many mortgage lenders will conduct thorough searches, and trying to hide adverse credit will look bad.

Have an explanation:

We find that lenders need to know more about why you need a mortgage. They will be interested in knowing why you got into financial trouble and what has happened since then. Be prepared with an honest explanation of the circumstances surrounding your requirement.

What is considered as a good credit score for a mortgage?

Your credit score is the number that lenders use to draw an estimate of the risk in extending you credit or lending you money. It is a key factor in determining whether you will be approved for a mortgage. The score isn’t really a fixed number since it fluctuates periodically in response to changes in your credit activity (for example, if you open a new credit card account). If this is the case, you may ask what number is good enough, and how do your credit scores influence the interest rate you are offered? Read on to find out.

  • In general, it is known that a credit score of above 670 will allow you access to prime or favourable interest rates on your loan or mortgage.
  • Scores below 620 are considered subprime. They come with higher interest rates and several restrictions due to the greater risk to lenders.
  • In order to qualify for a low down payment, you’ll need at least a 580 FICO credit score.
  • Those with worse credit scores may still be able to obtain a mortgage from specialty lenders. This comes with paying higher rates, requiring larger down payments, the need for a guarantor or co-borrower, and it could be subject to income verification.

FICO Scores

The most common credit score is the FICO score, created by the Fair Isaac Corporation. It is calculated using various types of data from your credit report. The parameters they use to arrive at this calculation are:

  • Your payment history (which represents 35% of the score)
  • Amounts that you owe (30%)
  • The length of your credit history (15%)
  • Types of credit you currently use (10%)
  • New credit you may have applied for (10%)

Check your score with the below mentioned ratings.

  • 740–850 score: This is considered as excellent credit. You can get easy credit approvals at the best interest rates.
  • 670–740 score: Is considered good credit. Your mortgage is typically approved and you are offered good interest rates.
  • 620–670 score: This is an acceptable credit score. Your mortgage may be approved at higher interest rates.
  • 580–620 score: This is known to lenders as subprime credit. It’s possible for you to get a mortgage, but not guaranteed. The terms of such mortgage will probably be unfavourable.
  • 300–580 score: This is known as a poor credit score. There is little to no chance of getting a mortgage. You will have to take steps to improve credit score before being approved for any loan or mortgage.

Will getting a mortgage loan improve your credit score?

Financial gurus have been warning people against taking mortgages. Taking out a mortgage will temporarily hurt your credit score until you show that you can pay back the loan.

  • Improving your credit score after a mortgage entails making on time and consistent payments. If you can keep your debt-to-income ratio at a reasonable level, it will help your credit score.
  • Mortgages could help your credit score by improving your mix of revolving debt to the instalment debt. This mix typically accounts for about 10% of your score.

The bottom-line is that if you pay your mortgage on time every time, any debt you take on is considered a responsible debt. It is important that you avoid making any other major purchases within six months of taking a mortgage, as your credit score will likely drop due to getting a loan. If you can establish a history of responsibly paying your mortgage and any other bills, your credit score should soon be better.

Does applying for multiple mortgages affect credit?

Applying for any new credit cards or smaller loans will count as “hard inquiries” and they have the potential to temporarily hit your credit score adversely. For smaller lines of credit, you know the terms and exact benefits before applying and therefore you probably won’t apply for many at once.

But applying for a mortgage is tricky and may seem more dangerous since you will want to compare multiple mortgage options in a short period of time. This could put your credit score at greater risk. Fortunately, credit bureaus like ours can understand your need to shop for mortgage options and our experts provide you a little relief in your mortgage credit pull window.

A mortgage credit pull window

The mortgage credit pull window is a grace-period where multiple mortgage applications can count against your credit score as a single hard inquiry. This window lasts for 45 days. It begins from the initial application and credit inquiry.

How to protect your credit score while shopping for a mortgage

Your credit score will impact any the loan programmes and interest rates you qualify for. There are some key things you need to remember as you shop for a mortgage.

  • Avoid applying for other lines of credit such as credit cards, auto loans, etc. while shopping for a mortgage
  • You will need to keep your mortgage shopping time to a maximum of 45 days
  • Don’t miss any payments on open accounts as they directly impact your credit score

FAQs on how multiple mortgage applications affect credit

  • How many points will I lose when I apply for a mortgage?
    You could see a loss of about 5-10 points.
  • How many days do I have within the mortgage credit pull window?
    The window is said to be between 7 and 45 days.
  • How many mortgage lenders can I speak with?
    There is no limit to the number of lenders you can speak with in the mortgage credit pull window. If you ask the right questions to your prospective lender, you can stay well within the time of 45 days.

Top mistakes to avoid when you apply for bad credit mortgage

You need to be better prepared in terms of your market understanding if you apply for a bad credit mortgage. Our experts can help with this, but it is essential that you don’t make the following mortgage mistakes as borrowers:

  • Not getting pre-approved for a mortgage
  • Not shopping around for a lower interest rate
  • Failing to check your credit scores in advance
  • Opening new credit cards before applying
  • Making late mortgage payments or worse, foreclosures
  • Not saving enough for a down payment
  • Not seasoning your assets beforehand in a bank account
  • Applying with a limited employment history
  • Changing jobs prior to any loan application
  • Forgetting to lock your mortgage rate
  • Attempting to refinance after listing your home

You must avoid the points listed above to ensure that your credit score is as high as possible.

Points to remember when you consider to apply for bad credit mortgage

Here is what we feel you can do to help your understanding of the bad credit mortgage market, before you apply:

  • Start with your credit report – The first thing lenders do is to check your credit; you should, too. Regular credit monitoring ensures that you get the best possible rates.
  • Get things in order – Monitor your debt-to-credit ratio. Flag any discrepancies, if you see accounts that you didn’t open or addresses that aren’t yours. You must take immediate steps to investigate what could be identity fraud.
  • Do your homework – Research mortgages, loans, interest rates and brokers exhaustively before you sign or financially commit to anything. Doing this will help you get a better rate and terms as a borrower.
  • Be realistic about what you can afford – You can live the dream, but keep one foot on the ground, too. You will need to figure your calculations based on the rate you’ll be able to get.
  • Understand how lenders operate – The higher your credit score, the easier it will be to get the mortgage amount and rate you want.
  • Decide how you’ll finance it – Depending on your financial situation, choose between fixed rate mortgage and adjustable rate mortgage.
  • The larger your down payment, the wider your options – Putting down more money up front will help ensure that you pay less each month.
  • Check on pre-payment penalties – You’ll need to check whether or not you’ll be penalized for paying off the mortgage early.
  • Take a targeted approach to mortgage applications – Remember to keep an eye on your credit score though all the mortgage options you are considering.
  • ‘Not now’ doesn’t mean ‘Never’ – While the current market situation may not suit you, you finances may change at a later date. Choose to invest mortgage wisely.

Points to do after you get a bad credit mortgage

There are a few pointers that our experts suggest you use, after you get a bad credit mortgage. These are just starters and basic tips that help you stay afloat.

  • Close old, inactive accounts or they can kill your application
  • Carefully manage your available credit
  • Cut back on spending before you make your mortgage move
  • Stay out of your overdraft
  • Make paying your rent boost your credit score
  • Sort your paperwork to speed things up

If you are in need of expert advice, don’t hesitate to get in touch with us today.

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