Bad Credit Mortgage Case Studies
If you are looking for a mortgage but have a bad credit history, then you are going to have to take a slightly different approach to the borrowing process. While many mainstream mortgage brokers will not lend to anyone with a bad credit history, there are specialised brokers who deal specifically with bad credit mortgage applications who will be able to help you.
Finding out how you would be viewed by a potential lender is a good place to start when looking for this kind of adverse mortgage lending, so here are a few examples just to give you a rough idea. There are three basic levels of credit adversity that will be considered by lenders, of course the worse it is the fewer options you will have.
First off there is Light Adverse, a good example of which would be a young couple, both first time buyers who have saved a 5% deposit for their home. They need 4.2 times their income in order to obtain their mortgage however one of them had a default registered against them of around £1,000 in 2004 and had missed a couple of credit card payments over the last 12 months. Many high street Lenders would view this unfavourably, for instance Abbey National and C&G rejected their application, however First National were prepared to offer them their 95% LTV mortgage.
The next level is Medium Adverse, someone requiring a 90% LTV mortgage, however they have a CCJ and defaults of £3,000. Add to this two missed mortgage payments over the last year and one additional missed payment on a credit card in the last six months. Their current mortgage provider, C&G rejected their new mortgage application, however the same application was accepted by BM Solutions.
The final level is Heavy Adverse, and this is where you really have got in trouble with your credit and repayments. For instance, a self employed couple wanting to remortgage their home in order to pay off numerous unsecured credit amounts so they could have just one manageable repayement every month. They were in mortgage arrears already and had only recently been discharged from bankruptcy. It was possible for them to secure a remortgage through GMAC without having to provide evidence of income as they were self employed.
As you can see, even in what might seem the most dire financial circumstances it is possible to secure a mortgage, and while it may not be the best deal around at the time, when you are taking on a bad credit mortgage you already know that you are not going to get favourable terms.
Poor financial management can lead to debts being unpaid or regular payments being missed, this in turn leads to credit reports reflecting the fact that you haven’t kept up to date with your financial commitments and therefore may be a lending risk. In the case of one or two missed payments it is normally possible to speak to your creditor and explain why you have missed the payments, bring the account up to date and all is well. However, in the case of regularly missing payments or consecutive missed payments, this kind of behaviour is reported to credit agencies which will make a note of it against the relevant account on your credit report.
It is important to keep on top of financial commitments, as not doing so can lead to penalites, debt collection agencies becoming involved and worst case scenario being taken to court or forced to go bankrupt. However, many people struggle to manage their finances effectively and find themselves in the situation where their credit report tells potential lenders that they are a high-risk which in many cases is reason enough for credit applications to be declined. It is in these situations that people find themselves turning to specialist lenders who can offer loans, credit cards and mortgages to people deemed as high-risk.
If you find you have been rejected for credit, it is worth getting a copy of your credit report to get an idea why – it is not uncommon to find errors on your report that will go against you, all you need to do is call the credit agency and explain the error to them and ask them to correct it. If you have been rejected for credit don’t just keep applying in the hope that an application will be accepted as each application requires a search on your credit record, and each search leaves a footprint showing what it searched for and why. Multiple searches in a short space of time will only drive your credit rating down, which if you have been rejected already is the last thing you need. Check you credit report and if it is showing you as a high-risk debtor then you will need to approach a specialist company to help you get a bad credit mortgage. These companies balance the risk they are taking by asking for higher deposits and charging higher interest rates than most high street banks, and of course the loan is effectively secured on the property so there will always be some form of recompense should you default on your payments.
