When it comes to applying for a mortgage with an indecent credit record, many home seekers are put off due to lack of opportunity. The high rate of interest and lesser loan limits are only part of problems but it is important to know that there are mortgage options available for bad credit borrowers as well.
You may be earning a good income but your credit record is one of the most important factors lenders will consider when granting you a mortgage. Bad credit or a low credit score can seriously reduce your chance to gain a mortgage irrespective of your income status. This is due to the fact that lenders consider people with an imperfect credit at risk of defaulting on their loans. However, it is still possible for you to qualify for a mortgage and buy a home even though you have a bad credit score. Here we are going to discuss how to get a mortgage with bad credit but good income from Shine Mortgages in the UK or any direct lenders.
While conventional mortgage providers, like established banks and credit unions, have a very strict lending policy and hesitate to provide a mortgage to people with low credit record, there are some direct lenders who provide a mortgage to even those borrowers who have a less-than-perfect credit score.
There are different ways to increase your chances of getting mortgage approval with poor credit.
Examine Your Credit Status
The first step towards securing a mortgage is to get yourself acquainted with your credit record. Once you know your status, it will be easier for you to calculate what kind of mortgage is feasible for you, and where your negative points lie. By getting a copy of your credit report from one of the credit agencies, your application for a mortgage with low credit can be enhanced in advanced.
Enhance Your Status
There is no benefit in leaving the things as they are. Most of the time, the major problem is a low credit record, with current debt making the situation worse. In order to get approval on your mortgage application despite poor credit record, it is very important to enhance your status. So, this could entail taking out a debt consolidation loan and clearing out all your current debt in one go.
This strategy works well because it increases the credit score by paying off the loan and lowers the debt-to-income ratio by decreasing the monthly outflow of money, both of which are an important factor in securing a mortgage.
Maintain A Steady and Regular Income
When lenders view your mortgage application, they are very likely to see your ability to pay your existing monthly expenses like rent and utility bills. The lender will also check that you are employed and have been earning good for a minimum of 2 years. If you are self-employed then you have to maintain a steady annual salary. Having a poor credit for self-employed can be difficult but with a good income, it can become easy for you to get the mortgage.
Make Large Down Payment
Generally, a down payment is required to grab the deal related to property purchase. Usually, this percentage is from 5%-20% of the entire amount. But in order to grab a deal with bad credit, a large amount of down payment will be very helpful. The reason comes around the size of the mortgage amount. This will result in much smaller monthly repayments. And mortgage approval with a low credit score is easier when repayments are smaller and more affordable.
Go For Longer Term
One more option is to look for a longer duration when you are taking a home mortgage.
Generally, standard mortgage terms go up to 25 years, but you can get one that lasts up to 40 years in the UK.
If you are getting a mortgage for the first time:
A term of fewer than 20 years comes under a short-term mortgage
A term of 30 years and more comes under a long term mortgage
The advantage of a long-term mortgage is lower monthly repayments.
Though there is one drawback, the interest paid would be more over the period of mortgage duration but that should be acceptable if you are able to get the mortgage even though you have bad credit.
Think About Alternative Lenders
Finally, it is worth contacting alternative lenders as they are more open to providing mortgage approval with a poor credit score. Online or direct lenders are good examples who provide more flexible deals designed to benefit the bad credit borrowers. However, they charge a high rate of interest.
When you are searching for how to get a mortgage with bad credit but good income there are certain things which you need to take care of. By looking at what makes your credit as bad or good and how and where to apply for the mortgage. You should be able to search the perfect deal for according to your need.