How To Get a Mortgage with Bad Credit but Good Income?

Do you have a less-than-perfect credit score? It is often thought that it is very difficult to get a mortgage with a poor credit situation. The mortgages for poor credit people come with a higher rate of interest. However, having a good income compensates for the majority of risks associated with a low credit score.

In the case of a good income, even with a poor credit situation, raising funds for property purchases is not only possible but effortless. Through the guide given below, you can learn how to get a mortgage with bad credit but good income.

How does bad credit affect your mortgage approval chances?

The first impact of a bad credit situation is on the monthly and total cost of your mortgage. Due to your higher-risk credit profile, lenders will approve loans at a higher interest rate.

A bad credit situation is often an obvious result of some common credit issues. These are:  

• Missed or late repayments,
• High credit utilization,
• Bankruptcy and
• Defaults and CCJs.

However, lenders, especially online lenders, do not base their approval decisions solely on your credit score. If you have a reliable, strong income, you can find better deals.

How does good income compensate for a bad credit situation?

When you have a good income factor in favour, it increases approval chances manifold.  These factors are mentioned below.

• Pass affordability checks

For direct lenders, your income is more important than your credit score. Your current repayment capacity plays an important role in this. Hence, being on the higher end will help you pass the parameters of the credit check.

• Buffer against financial shock

A good income means you have a strong repayment capacity. Considering this, lenders give you approval easily. You are a risk-free borrower whose repayment capacity can be easily trusted.

• Lower loan to Income ratio

If you borrow less than your repayment capacity, it shows your strong creditworthiness. It is considered a healthy sign. This means that you have a low-risk credit profile. In such a situation, you are easily eligible for funds despite having a bad credit situation.

• Deposit building

A good income means you can save a large amount as a deposit. This means you have to take a smaller loan amount. Considering all these factors, lenders give you approval easily. You are a risk-free lender whose repayment capacity can be easily trusted.

Tips to improve eligibility for a mortgage with bad credit

Getting a mortgage with bad credit is a bit challenging, but not impossible. If you take care of things, you can easily secure funds for property purchases through a customised deal.

• Check credit report

First of all, check your credit report. Many times, wrong information is mistakenly mentioned in the financial reports and due to this, your overall credit rating can go down even further. For example, a pending bill which you have already paid may still be showing in your credit report. Hence, it is vital to rectify any kind of error and give an error-free report to the lender. By this, you will be able to show timely paid bills, which will improve your mortgage request chances.

• Improve financial conditions

Try to improve your financial conditions in every way possible. This way, you can easily get approval by working on some important details. For example, clear outstanding debts, avoid new credit applications, register on the electoral roll, and reduce credit utilization. All these are tips which have a direct impact on your credit rating. By following them, you can enhance your financial stability and credit score as well.

• Arrange a large deposit amount

Having a good income will make it easier for you to save a large deposit amount for property purchases. In a bad credit situation, due to taking a mortgage, you are not able to get a loan on the major percentage of the property price. But if you have a good income, this is always an important point in your favour. Use your large income to save a good deposit amount. This will also help you bargain on the rate of interest by taking fewer loans.

What mortgage products can you get with bad credit?

• High-interest rate mortgages – These mortgages reflect the increased level of risk. 
• Variable-rate mortgages – These may have a lower rate but may increase with time.
• Fixed-term deals – Predictable monthly instalments due to a fixed rate of interest.
• Joint mortgages – Applying with a partner with a high credit score considerably improves approval chances.
• Guarantor mortgages – A family member acts as the guarantor to secure the loan and is liable to repay in case of default.

Financial factors lenders see beyond credit score status

The concept of bad credit mortgages is possible only due to one fact. Yes, liberal lenders like Shinemortgages are ready to see the financial factors beyond your credit score. 

• Monthly income Vs expenses

Your income should never be dominated by expenses. Therefore, keep your outgoings low while applying for a mortgage.

• Employment stability

Staying in the same job for a long time helps you get approval on property loans with a poor credit situation.

• Length of time at current address

Living at the same place for a long time helps you prove your authenticity in the eyes of the lenders.

• Debt-to-income ratio

Your existing debts should never dominate your income. The perfect ratio is 60:40, which means 60% income and 40% debt.

• Severity and the age of credit issues

Credit score issues vary as per the individual circumstances of the borrower, whether it is missed payments or as severe as bankruptcy.

Conclusion

The information above clarifies the dos and don’ts of mortgages with bad credit. You can know a lot about your approval chances after reading the facts above. One common fact that is present in every factor is your good income and strong repayment capacity. With high income, any financial issue can be managed. Therefore, work on improving your financial conditions and get easy approval on the mortgage.

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