An adverse credit mortgage loan can help a homeowner to borrow additional money, consolidate debt, perform home improvements and/or reduce home mortgage payments. The problem facing homeowners is that fewer banks are prepared to offer mortgages with bad credit and those that do apply tighter eligibility criteria. However, knowing those criteria will increase the likelihood of receiving creditor approval.
Adverse Credit Mortgage Loans
A mortgage with bad credit is necessary when the applicant’s credit score rating is low. Past misdemeanours, such as missed/late payments and account delinquency, will increase the cost of borrowing. This is because the risk of future default is greater. Lenders charge a higher APR, require a larger house deposit and a more stable employment in order to minimise the likelihood of default.
Bad Credit Mortgage Broker
Not only does an intermediary have years of expertise, they also have access to a number of industry contacts. Adverse credit mortgage loans are a difficult area, but professional guidance and assistance can greatly increase the likelihood of approval. Borrowers should use an online comparison service to see what offers they are able to get and compare these rates to a specialist bad credit mortgage broker. It is then relatively easy to determine whether the cost exceeds the savings achieved.
Improving a Low Credit Score
Whilst poor credit is the accepted consequence of missed and late payments, it is still important to gain access to a free credit report. Inaccurate information should be corrected through the applicable credit reference agency (Experian, Equifax or TransUnion). Perform these checks a minimum of 6 months before applying for an adverse credit mortgage loan so there is sufficient time to resolve the matter.
House Deposit and Home Equity
In order to receive approval for a mortgage with bad credit, the lender will require a house deposit (or home equity) equivalent to 20-25% of the properties value. Whilst this protects the lender against negative equity in a falling market, the primary reason for this requirement is the likelihood of default. Should the borrower default, it is easier to recover the money lent via mortgage foreclosure.
Stable Employment History
Those in a temporary employment contract or still in their probationary period will find it virtually impossible to get approval for a mortgage with bad credit. It would be difficult to get acceptance with excellent credit. The longer that the applicant has been in the same source of employment, the better.
Borrowing money must be affordable or the likelihood of default increases dramatically. Whilst lenders will accept a poor credit history, they will check the applicant’s debt-to-income ratio. Home mortgage payments must be affordable in order to reduce the probability of default.
In order to get approval for an adverse credit mortgage loan, it is necessary to comply with as many of the above criteria as possible. Lenders will seek to protect their business interest by ensuring there is sufficient home equity and home mortgage payments are affordable/sustainable over the long term. A bad credit mortgage broker can help to remove many of the complications.