How to Get a Mortgage With Poor Credit: A Comprehensive Guide

Having a mortgage can be a great way to buy a house. However, if you have poor credit, it can seem like an impossible dream. Many lenders will not consider you as a potential candidate unless you can demonstrate that your credit problems are in the past and you are ready to begin responsibly managing debt again.

poor credit

Whether you’re looking to purchase your first home or trying to upgrade from that studio apartment you’ve been living in for years, securing financing with bad credit requires work. In general, you need to be prepared with a lot of documentation and financial information that demonstrates your ability to responsibly manage debt going forward.

In this comprehensive guide, we’ll look at everything you need to know about getting a mortgage when you have poor credit as well as how to improve your credit rating and manage your debt.

What Is Credit?

Credit is a financial tool that allows individuals to purchase goods and services on a payment plan. This system makes it possible for a lot of people who would otherwise not be able to access goods, such as mortgages, to do so. The catch is that if you fail to make timely payments on your debt, your credit score will drop, impacting your ability to access loans in the future. Your credit score is determined by looking at the information in your credit report to determine a three-digit number. Credit scores fall into one of five categories:

  • Bad: 0-560
  • Poor: 561-720
  • Fair: 721-880
  • Good: 881-960
  • Excellent: 961-999

Understanding Bad Credit Mortgages

A bad credit mortgage is a loan that provides relief to borrowers who have had trouble with their credit in the past and are now looking to buy real estate. Normally, people with a bad credit score would not qualify to receive a loan because of the risk involved to the lender. This being the case, a bad credit mortgage allows borrowers with low credit scores to secure a loan to purchase a property. However, if you have a bad credit score, you’ll likely be required to pay a higher interest rate as well as put down a larger deposit than those with good credit scores.

Speaking To A Bad Credit Mortgage Broker

A bad credit mortgage broker will be an essential part of your journey to obtain a mortgage when you have poor or bad credit. They can help you navigate the process of securing a bad credit mortgage, ease the stress of the process, and provide assistance with documentation. A bad credit mortgage broker should have in-depth knowledge of the industry, be able to advise you on the best path to take, and have experience working with clients who have a bad credit rating. If you are searching for a bad credit mortgage broker, you should keep Money Nest in mind as they specialise in bad credit mortgages as well as mortgages for people with CCJs, IVAs, or those in need of a debt management plan.

Finding Out What Your Credit Score Is

One of the first steps to getting your credit score is to find out what it actually is. There are a number of places where you can do this, including credit agencies like Experian or MoneySupermarket. When it comes to requesting a copy of your credit report, you don’t need to worry about paying a fee, as it’s free to access your credit rating.

Saving For a Deposit

When you have poor credit, lenders may charge a higher interest rate or require you to pay a larger deposit. You can save for a deposit in a number of ways, but to make saving money a more realistic goal, make a budget and decide what you can cut from your expenses without impacting your quality of life. You can also pick up a second job, side hustle, or work overtime at work.

Repairing Your Credit Score

Even when you get a mortgage designed for those with poor or bad credit, it’s a good idea to work towards repairing your credit score for any future borrowing needs. This means that you need to either pay off your debts or make arrangements with your creditors to pay off your debts. You can also take steps to create a positive mark on your credit report to improve your score:

  • Make repayments on time: Make sure that you make all of your payments on time and in full. This includes your utility bills, phone bills, and other regular expenses that show up on your credit report.
  • Get a credit card: If you have bad credit and you’re ready to use a credit card responsibly, get a credit card. To use a credit card to improve your credit score, you will need to use it to make a purchase and pay it off on time each month.
  • Consolidate your debts: If you have many debts you are working towards paying back, but you’re struggling to keep up with the interest rates, you can choose to consolidate them. You can speak to your bank or building society about how you can put your debts in one place under a single interest rate with repayments you can afford.

Ensuring You Can Afford The Monthly Repayments

Before you go out and apply for a mortgage, you need to be sure that you can afford the monthly repayments. You can do this by creating a budget and calculating how much money you need per month to make your payments. You can also speak to a financial advisor who can help you create a budget and ensure that you are ready to take on the payments.

Creating a Budget

Creating a budget is an important step in getting your finances together before you apply for a mortgage. A budget is a plan for how you will spend your money each month, including your discretionary spending, savings, and debt repayments. By creating a budget and sticking to it, you can be sure that you can afford the monthly repayments if you are approved for a mortgage. You can use an online budgeting app, an excel spreadsheet, or a paper-and-pencil budget. Whichever method you choose, make sure to track your spending and make adjustments as necessary.

Delinking Your Credit Score From Ex-Partners

If you are divorced or separated from your spouse, you may want to delink your credit score from your ex’s credit. If you are both listed as joint tenants on a credit account, their low scores and spending habits could impact your credit score. It may take some time, but you will see an increase in your credit score as soon as the account is delinked, which you can do by speaking to a credit report agency.

Closing Old, Inactive Accounts

One thing that can lower your credit score has too many open accounts that are not in use. This could be anything from a credit card to a savings or current account. You want to make sure that you keep your accounts active so that you do not risk damaging your credit score. If you have a lot of open accounts that you’re not using, you may want to consider closing some of them. Closing old, inactive accounts can help increase your credit score and make it easier to get approved for a mortgage.