The idea of buying a house excites you as well as terrifies you. If you are a first-time buyer, you will be edgier because you are likely to be turned down due to your bad credit history. A few online lenders may approve your mortgage but you will have to increase the size of your deposit. What if you do not have enough funds? This is definitely disheartening.
Getting a foot on the property ladder has never been a cinch even for good credit borrowers, so you may think that less-than-stellar credit rating rules you out completely. This is not always the case. Some online lenders have introduced leniency in their policy. Bad credit mortgages are possible. You just need to focus on the ways to make yourself as an attractive borrower as possible.
Here Are Some Myths About Bad Credit Mortgages:
You Need At Least 20% Of Deposit
You must have a minimum of 5% of your property value as a deposit to get a mortgage, but this amount goes up to 20% if your credit rating is less-than-fair. The deal seems to be highly risky and therefore, lenders try to reduce their risk by asking for a huge amount of deposit. It has been in practice for years, but inexpensive housing market, it can be onerous to arrange such huge funds. Not all mortgage lenders will ask you to put such a huge deposit.
Your Credit History Is To Be Perfect
Borrowers with a good credit history will undoubtedly get a better mortgage loan than those with a bad credit rating. In times gone by, it was mandatory to have a good credit history. Now lenders are ready to approve your loan application even if your report shows a few payment defaults. You are likely to have a greater chance to get the mortgage approved if you have a steady source of income and most parts of your dues have been settled on the scheduled date.
Though you can get the bad credit mortgage deal, it does not mean that credit rating is worthless to build. Make sure that you pay off all your credit bills, utility expenses and other debts. If you have any short-term loan, try to settle it before you apply for a mortgage. Timely repayments will help you convince your lender that default risk is not too high.
Preapproval Means You Will Get Money
Mortgage preapproval can assure you that you are on the track, but it does not mean that you will get the loan. The lender may change terms. Chances are you do not agree with them. Your financial situation may also change. Maybe you are laid off or you have to change your job for some personal or financial reasons. You may come across an unexpected expenditure for which you take out a short-term loan or a big expense may drain away from your savings. Numerous unexpected situations may pop up and change your profile to the lender. Do not assume that preapproval is the final approval.
When it comes to signing the agreement, check interest rates, repayment term, penalties, and other terms and conditions to ensure the deal fits your financial circumstances. Do not be dependent on only one lender. If you have an offer from multiple lenders, it will be easier to select the best deal.
Bad Credit Mortgages Carry High Interest Rates
Good credit borrowers deserve to get additional benefits and hence they pay lower interest than bad credit borrowers. A poor credit history shows a higher default risk, making difficult for the lender to decide whether to approve or reject. Some generous mortgage lenders charge lower interest rates compared to other lenders. Do proper online research to get an affordable deal.