A good credit score is typically deemed an essential when it comes to applying for a mortgage loan. However, not all of us have picture-perfect credit, especially after the world's events over the last couple of years. If you have a low credit score, you might think that owning a home is an impossible dream. The good news is, bad credit mortgages exist – and they can help you achieve your home-ownership goals. But before you dive in headfirst, it's important to understand what bad credit mortgages are, as well as the pros and cons of this type of mortgage.
A bad credit mortgage is specifically designed for borrowers with low credit scores. In contrast to conventional mortgages, bad credit mortgages come with higher interest rates to counter the perceived risk of lending money to a borrower with a poor credit history. These lenders offering bad credit mortgages often require a larger deposit and might come with additional fees.
It's possible to own a home with a low credit score: The best thing about bad credit mortgages is that they give you a chance to achieve your home-ownership goals, even if you have a less-than-ideal credit history. Credit events such as missed payments, defaults and CCJ's stay on your credit history for 6 years. By taking out a bad credit mortgage, you can purchase a home without having to wait until your credit score has improved.
It's important to understand that just because you need a specialist lender now, it doesn't mean you always will. It is possible to only be with a specialist lender temporarily, until a time your credit score/history has repaired to a 'normal' level that would be accepted with a more mainstream, high street lender.
Higher interest rates: Bad credit mortgages often come with higher interest rates than conventional, standard mortgages. This means you'll be paying more in interest charges over the life of the loan, which can take a toll on your finances. Additionally, you might need to pay more in fees and put down a larger deposit down.
While bad credit mortgages may be more forgiving than conventional loans, they still require you to meet certain criteria. To qualify for a bad credit mortgage, you'll need to have a stable income and employment history and be able to prove these to the lender. Additionally, you'll need to demonstrate that you have a deposit available and prove its origin - gifted deposits from family members or even friends can be accepted with some of the specialist lenders.
If a bad credit mortgage doesn't seem like the best option for you, one option is to work on improving your credit score. By paying off debts, making timely payments, and disputing any errors on your credit report, you might be able to bump up your credit score and become eligible for a standard mortgage.
If you have a low credit score, a bad credit mortgage might be the answer to your home-ownership dreams. However, it's important to weigh the pros and cons of this type of loan, and consider alternative options if necessary. By understanding your choices and taking steps to improve your credit score, you can make smart decisions and get one step closer to owning your own home.
If you would like any further advice or would like a chat to discuss your options, please do get in touch with our team today.
