You cannot control situations but can tailor the way you act in your financial life. May be certain circumstances pushed you in poor credit score situation. Now you have to apply for a mortgage despite imperfect credit score performance. This means your struggle is going to be big. You need to take every step with extreme caution while giving due attention to all the possibilities that you can explore to get approval.
The major requirement is to find mortgages for bad credit
The start of your journey can take place from here only. It is perhaps already clear to you that due to poor credit situation, it is not advisable to apply for any normal mortgage deal. This is because, their first demand is of a good credit score which you do not have at least currently.
Better is to search for the mortgages for bad credit. Online search can be a better option as it is fast and convenient. Also, due to emergence of direct lending, the mortgage lenders too have come online.
Gather the deposit amount more than the normal
In normal conditions, the deposit amount is 5% but if the credit score is poor, you should collect a bigger amount. It is expected from the borrower to give 15% deposit.
There are three reasons behind this –
- For a poor credit scorer, lender usually acts reluctant and avoids lending a huge amount.
- Lender wants the applicant to have a big deposit amount as this helps them understand the repayment capacity of the fund seeker.
- It becomes easy to bridge the gap between the loan amount and the property value.
Bring a co-applicant
The weakness of your credit score can be compensated easily if you bring a co-applicant. However, that person should have an excellent or at least good credit score. Something that can be even more promising is a pair of two strong factors. They are – 1) a co-applicant and 2) a big deposit amount. This can surely bring an easy approval.
Make sure that your co-applicant is not in multiple debts otherwise it will be of no use. His/Her presence is necessary to strengthen your eligibility to get funds. If that strength is weak on any aspect, you can lose your chance to get accepted for mortgage. This means, you need to be very careful while you bring a co-applicant.
Pay the debts and expenses on time to improve in credit score
Paying the debts on time improved your credit score, because poor credit score happens due to derailed payment history. Besides, lenders are always eager to see your current financial behaviour. If you are not paying the debts and expenses on time, that is going to show in credit records. This makes the lender make a perception. If a person who is not able to handle other financial commitments then how can he handle the mortgage instalments. Do not let the lender think like this. At least 6 months before applying for the mortgages for bad credit, pay expenses on time. Every small factor matters when your credit score is poor.
Buy property when real estate market is down and loans are cheaper
Real estate market keeps going through vicissitudes. When someone has a bad phase it can be good luck for someone else. If you are buying the property when real estate market is down, it is easier to find properties on lower prices. This facilitates ease in the struggle of mortgage too. With low price you need to take a smaller loan and also the deposit amount is there to help. This time loans too are available on lower rates. From both the sides, you are in advantage. When your credit score is not good, it becomes vital to play smart.
The 4 factors that lender notices on your eligibility for mortgage
There are certain things that are decisive and mortgage lender can never ignore them. You should know them as it will be possible to work on them beforehand.
- Income and employment status
For a long-term loan, it is always necessary to see whether the applicant is employed or not. And, if he is employed then what is the income. Small income leaves less space for a new loan obligation while the bigger income can encapsulate many instalments.
- Income-outgoing ratio
This is related to the repayment capacity. The idol ratio is 60:40, this means 60% income and 40% expenses. However, for poor credit scorers, it is natural to expect 70:30 ratio. In fact, some lenders may even demand 80:20.
- Age is a huge factor
Younger you are, bigger is the loan amount and better are the chances of smooth loan approval. Applicants over 75 face more struggle in loan approval than those in their 30’s and 40’s.
- Property type
This is about the standard of the property. The non-standard property will required a specialised lender. The mainstream lenders may not approve the loan.
Borrowing for mortgage with bad credit score is not a cakewalk but also not an impossible task. With attention to the above points, you can surely know the right direction to go. When the starting is good, ending is also destined to be good.