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A Comprehensive Guide to Bad Credit Mortgages for Beginners

Bad credit scores are one of the biggest hurdles when trying to get a mortgage. A poor credit score lets lenders know that you’re a high-risk borrower, which can lead to higher interest rates and stricter loan terms. In many circumstances, obtaining a loan may even be impossible.

In this article, we will discuss all the factors you need to know as a beginner before even applying for a bad credit mortgage. Plus, we’ll share a step-by-step guide to getting approved for a mortgage with bad credit. We were able to get hundreds of bad credit mortgages approved by following these simple steps. So, we hope it will help you too.

Let’s Get to Know About Credit Scores in the UK 

What is a “Bad” Credit Score?

Before we go any further, let’s clarify what we mean by “bad” credit. Simply put, A bad credit score is a poor estimate of your financial situation made by a credit reference service based on your history of debt (or lack of it). It’s important to note that each lender has their own definition of what constitutes “bad” credit. So while one lender may consider you a high-risk borrower with a score of 800 on experian , another may see you as a prime candidate with 800. It all depends on the standards of the particular lender you’re working with. 

What Is the Minimum Credit Score to Get a Normal Mortgage in the UK?

The minimum credit score in the United Kingdom to obtain a mortgage is 640. This is based on data from Experian, one of the UK’s main credit reference agencies. The minimum credit score required by other lenders may be higher or lower than this, depending on the specific lender’s criteria. However, 640 is generally considered to be the minimum score required to get a “normal” mortgage from a mainstream lender in the UK. 

What Happens When you Have a Bad Credit Score?

First and foremost, mortgages will be difficult to get approved. That’s because lenders see you as a high-risk borrower. They perceive that you’re more likely to default on your loan because you’ve missed payments or made late payments in the past. As a result, they’ll either deny your loan application outright or charge you higher interest rates and fees in order to offset their risk. 

Another side effect of having a poor credit score is higher interest. This is the percentage of your loan you’ll have to pay in addition to the principal (the amount you borrow). 

For example, let’s assume that you take out a £250,000 loan with a 4% interest rate. Over the course of 30 years, you’ll end up paying £279,674 in interest. But if your interest rate is just 1% higher, at 5%, your total interest costs would jump to £323,647 – that’s an extra £44,000! 

Sometimes, they may require you to have a larger down payment than someone with good credit – sometimes as much as 20% to 30% of the purchase price. They may also insist on a cosigner in order to mitigate their risk even further. All these factors make it harder – but not impossible – to get approved for a mortgage with bad credit. 

Bad Credit Mortgage in the UK

What is Bad Credit Mortgage

A bad credit mortgage is a type of mortgage specifically designed for people with bad credit. Bad credit can result from a number of factors, including financial difficulties, job loss, and bankruptcy. While a bad credit score can make it challenging to qualify for a traditional mortgage, a bad credit mortgage may be an option for some borrowers. 

There are a few things to keep in mind if you’re considering a bad credit mortgage. First, bad credit mortgages typically have higher interest rates than traditional ones. This means you’ll end up paying more over the loan life.

Additionally, bad credit mortgages may have stricter eligibility requirements, so it’s important to do your research before applying. 

Eligibility Requirements for a Bad Credit Mortgage

In order to qualify for a bad credit mortgage, you’ll need to have the following: 

-A credit score of 580 or higher 

-A down payment of at least 10% 

-Proof of income but not absolutely necessary 

-Proof of employment 

-Proof of residency 

-A debt-to-income ratio of 43% or lower  

However, Meeting these eligibility requirements does not guarantee that you’ll be approved for a bad credit mortgage. But it does boost your chances of getting approved. If you’re not sure whether or not you meet the requirements, it’s always best to speak to a mortgage specialist. They are capable of letting you know if you’re eligible or not.

Which Lenders offer a bad credit Mortgage?

Please feel free to call us to discuss lender options.

What are the risks associated with bad credit mortgage loans?

Bad credit mortgage loans are available from some lenders. But these loans come with risks that everyone should be aware of before signing on the dotted line.

Higher Interest Rates

The first and most obvious risk of taking out a bad credit mortgage loan is that the interest rate will be significantly more than normal mortgages. This is because lenders see you as a higher risk and want to protect themselves in case you default on the loan. The gap in interest rates can be significant, so make sure you understand what you’re getting into before you sign any paperwork.

Paying More Over the Life of the Loan 

A higher interest rate means that you’ll also end up paying more money over the life of the loan. In fact, depending on the size of your loan and the interest rate, you could end up paying hundreds if not thousands of dollars more in interest than someone with good credit. This is something to keep in mind when budgeting for your monthly mortgage payments.

Risk of Default 

Of course, one of the biggest risks associated with bad credit mortgage loans is that you could default on the loan. If this happens, your home could be repossessed, and you could find yourself out on the street. Before taking out a bad credit mortgage loan, make sure you have a solid plan in place to ensure that you can make your monthly payments on time and in full.

How to Get Approved for a Bad Credit Mortgage

It’s not impossible to get approved for a mortgage with bad credit, but it will be difficult. You will need to take a few steps to improve your chances of being approved, including:

Review Your Credit Score and History

 The first step is to get a copy of your credit report from all three major credit bureaus – Experian, Equifax, and Transunion. Once you have your reports, review them carefully to see where you stand. If you find any mistakes, dispute them with the credit bureau immediately. If your credit score is low, there are a few things you can do to try to improve it. 

Shop Around for the Best Mortgage Lenders 

Not all lenders are created equal. Some specialize in working with borrowers with bad credit, while others avoid it altogether. It’s important to compare offers from a few different lenders to ensure you’re getting the best possible deal. Be sure to compare aspects like interest rates, fees, and repayment terms. 

Get Pre-Approved for a Mortgage

Once you’ve found a lender you’re comfortable with, get pre-approved for a mortgage. This will give you an overview of how much house you can afford and put you in a better place to negotiate with sellers when you’re ready to make an offer on a home. 

Make a Large Down Payment 

One of the most approved ways to offset bad credit is by making a large down payment on your home. Your loan-to-value ratio will be reduced if you make a higher down payment, which will make you appear less risky to lenders. Aim for a down payment of at least 20% if possible. 

Consider an FHA Loan 

Another option for people with bad credit is an FHA loan. FHA loans are backed by the government, which makes lenders more willing to work with borrowers with less-than-perfect credit. 

Bottom Line

Bad credit mortgage loans can be helpful for people who otherwise wouldn’t be able to qualify for a loan. However, these loans come with risks that everyone should be aware of. By knowing the risks involved, you can make an informed decision about whether or not a bad credit mortgage loan is right for you. 

Secondly, remember that repairing your credit is always the best long-term solution to bad credit difficulties. If you’re able to improve your credit score, you may be able to qualify for a traditional mortgage down the road.

Finally, If you are determined to take a bad credit loan, then please consult with a mortgage advisor. It’s not possible to provide all the answers within a short article. Talking to one mortgage broker would reduce your risk as well as increase your chances of getting approved.