Mortgage seems to be a headache because of the tedious and lengthy application procedure and yet there is no guarantee that the lender will sign off on it. Applying for a bad credit mortgage seems to be an unrealistic situation, but the fact is a few lenders are providing such deals.
Though some lenders do not fight shy of approving applications from bad credit people, it does not mean they are bearing more risk. Lending money to a bad credit borrower is undoubtedly a risky job for lenders, How can they trust a person with multiple defaults?
To mitigate the risk associated with the transaction, lenders accept the deposit size of at least 20%. If you have a good credit rating, the deposit size needs to be 5% – however the higher deposit size, the better – but in case of bad credit it sharply goes up.
Lenders will not think your application worth considering if you have racked up debts because it seems to be a lot of risks. If your credit report reveals that you have a track record of missed repayments, lenders will consider that this is a dangerous trend and turn down your application without more ado.
Another risk associated with such type of mortgage is you may lose your house in case of missed repayments. Most of the people with bad credit history have outstanding dues, and until they settle them, they cannot apply for a mortgage.
You may think that your high income can make up for the bad credit, but it does not mean that the lender will sign off on your mortgage despite outstanding debts showing up on your credit file.
First, pay off your dues
Have you racked up your debt? Are your finances are in tatters? No matter who is responsible for it now is not the time to play the blame game and mourn over what has happened.
First off, you need to make a strategy to pay off your debts. Some of the tips are:
- Work overtime. Ask your employer if he is willing to pay you for overtime to bail out.
- You should do freelancing to earn extra money.
- Take help from your patents. Ask them if they can help you pay back your debt.
Your bad credit rating will show up on a credit file for two years, but having repaid all dues can help you have your mortgage approved quickly.
Contact a mortgage broker
Since you are applying for a bad credit mortgage, make sure that you are doing it with the help of a broker. If you directly approach lenders, there are bleak chances that they will approve your application. It will lead to a further drop in your credit score.
Mortgage brokers have complete knowledge about the market, and hence they can help you get the best deal. They will consider your financial situation and then pick a lender from their panel whose deals will suit your budget.
Mortgage brokers will not run hard inquiries, and therefore there is no risk of losing your credit score, and you can get the deal at competitive interest rates.
Some lenders will approve your mortgage application despite a dodgy credit history, but they will charge more the average interest. They will also require a larger deposit, for instance, between 25% and 35% of the value of your property. They are likely to charge three times higher than the standard fees. Therefore, you should contact a broker to get a mortgage with bad credit but good income in the UK.
Be prepared to face rigorous questions
There is no denying that a mortgage broker will arrange a lender whose deals suit your budget, but getting the mortgage is not going to be easy. Your high income may be enough to mitigate the risk of the lender, but they cannot ignore the fact that you had a fairly high income, but even so, you racked up debts.
This is why the lender will likely ask you rigorous questions like
- How will you make repayments?
- Why did you fall behind the repayment to pay your earlier debts?
Since you faced complications paying off your previous debts, make sure that you are able to provide payslips and bank statement of more than six months to convince the lender of your affordability.
You can get a mortgage despite bad credit if you have a high income. However, make sure that you have no outstanding account on your credit file. Consulting a broker will be better than directly approaching a lender to get the best deal.