This is a question that so many people around the world ask themselves from time to time. You see, some of us, at one point in our lives may have taken too much debt, and probably due to some financial hardships, you defaulted paying it back, or maybe you were late in paying it, which means that you were listed in the credit bureau because of it. Now that things aren’t the same anymore, and you’re financially stable, or at least you aren’t in the same place you were before, you are considering taking a mortgage to boost the construction of your property. But you are not sure if you would be granted the loan, considering your past credit status.
What you need to know is that, yes, it is possible for you to get the mortgage, though the process might be a bit different and more complex than normal. There are mortgages that are designed to be given to individuals with poor credit, and there are some lenders whose specialty is giving out mortgages to these kinds of individuals.
When you apply for a mortgage, the first thing that the lender does is to check your credit history, trying to understand how you manage your finances. What’s more, they inspect your income, savings, and monthly outgoings – which is the amount you earn and the amount you spend. They do all these to ensure that any borrower who borrows money from them can afford monthly installments, and especially when things change – such as income going down or the interest rates going up.
When you have bad credit, of course, it will tarnish your credit eligibility, but if you present yourself in the best possible light, by taking care of your credit history and budgeting in a sensible manner, then there is a very high chance that the lender will consider your application. Also, there are a number of things you will have to do in order to prove to the lender of your credit worthiness. They include the following;
- You will have to prove to the lender that you are a responsible borrower, by ensuring that all your regular payments such as credit card payments and utility bills are made in full and on time.
- You should also review your spending to try and save as much as you can, and aim at maintaining your monthly outgoings as consistent as possible. At the end of every month, you should have some money left. This will further prove to the lender that you are a responsible borrower.
- Ensure that your credit report is up to date. You should review it regularly in order to ensure that the information contained therein is accurate.
- If you have a good explanation as to why you defaulted or were late in paying your past loans, include it in the application for the lender to see. It may be because of ill health or just redundancy, this information will help in trying to convince the lender that you faced some understandable financial difficulties in the past.
- The property that you are targeting should be realistically priced and affordable, especially since there are no mortgages around 95-100% loan to value.
- You will also have to give the lender an assurance that you will pay the installments no matter what. For example, you might need to consider having a guarantor, just as a reassurance.
What you should expect if the lender approves your loan
If the lender is convinced enough that you are a responsible borrower, you will get the loan. But the thing is, the loan won’t be a regular mortgage. Instead, expect that it will likely come with higher interest rates and the limit could definitely be lower. Also, depending on the lender, you may also be asked to deposit a larger percentage of the property’s value – maybe 20-25%, instead of the usual 5-10%.
The reason why this is the case is that the lender sees having bad credit or a lower credit score as a high risk. According to them, the higher the credit score, the better the chances of getting low-interest rates on the mortgages and also the chances of their loans being approved.
How about a joint application with your partner?
In cases where it is a joint application, where one partner has bad credit, the same case applies. Things will be less straightforward, and you may end up receiving unfavorable rates. But with the help and advice from a professional mortgage broker, it is very much possible for you to find a lender who will consider the credit score for both the wife and the husband separately and then looks at their overall worthiness of the credit. Furthermore, some lenders consider the reason and the severity of the mortgage, as well as the age of the borrower when making their lending decision.
So basically, the answer to whether you can get a loan when you have bad credit purely rests on you. It’s how you will present yourself to the lender. It’s upon your mortgage broker – if you have one – to prove to the lender that you can be a responsible borrower and to reassure them that you will heed to the terms of the mortgage.