These days, may people have poor credit. With the explosion of cheap and easy credit, more people have been landed with a poor credit rating. This has led to the phenomenon of the sub-prime mortgage.
However, simply because you have an adverse credit history does not guarantee that you will qualify for an adverse credit mortgage.
The reason for this is the lender must first weigh the risks a particular applicant poses and then make a decision to approve the application or not. In some cases, the risk is too high and the application is denied.
In other cases, the risk is moderate and the lending company simply increases the interest rate to account for this. There are many things a lending institution or sub-prime lender might do in order to account for an adverse credit history yet still approve the mortgage loan application.
The first step towards buying your property is to find out exactly how much money you can borrow. In the United Kingdom, this is worked out according to your income, usually three times your annual salary before Tax and National Insurance are taken away i.e. your ‘real’ income, not the one on your paycheck.
Some lenders will offer up to six times your salary! They’re not doing you a favour. A mortgage is a fat loan that has to be paid back. Default on it, then go bankrupt, and you may find it impossible to get credit of any kind.
Before taking the plunge, it’s important to improve your credit rating as much as possible. Before you fill out any applications, take whatever steps you can to improve your credit. Pay off old loans, and once they are paid off, ask your creditors to remove negative information from your credit report.
If you need new, positive credit listings, and can’t get a normal credit card, consider getting a secure credit card; one which is issued against a guarantee/collateral. This collateral is usually a deposit in the issuing bank; you can borrow up to this amount.
An easier route is a department store credit card; make a few charges on it, and pay them off promptly. The goal is to get positive entries on your credit report. Though this sounds a little desperate, it is the best way in which you could establish good credit with a lender.
Ensure you pay all your bills on time (or before time); never later than the due date. A positive credit history would be extremely helpful in getting you a mortgage.
The best thing for people to do when applying for a mortgage is to talk to their broker regarding the types available and the options they qualify for. This way, you’ll have a better idea of what is available to them and then can make an informed decision.
However, be aware that some mortgage lenders will pay some brokers commission for custom pushed their way; it’s better to make sure that you are using an independent broker to get you the best mortgage for your circumstances on the market.
Try to beg or borrow money from friends and relatives before applying you’re your mortgage, if you sure you can repay them quickly, and keep them loving you(!) Revise your plan. How much do you really need to realise your dream, in a practical sense?
If you end up getting a mortgage with a sub-prime lender and aren’t happy with your interest rate, remember that you can always remortgage again later. Be sure to maintain a good repayment history and work to improve your credit rating so you will be ready to remortgage again when the time comes.