Generally speaking, if you have a good credit score and meet the lender’s affordability tests, a mortgage offer with competitive mortgage rates could be yours.
However, if you have a poor credit history, lenders have another decision to make. They could turn you down for a home loan altogether or offer you a mortgage with higher interest rates to account for the increased risk they consider you to pose, based on your credit history. This type of home loan is known as a bad credit mortgage.
Importantly, lenders will have different criteria for applications, and some will consider taking on more credit risk than others. So, even if you’ve had an application rejected outright by one or more banks or building societies, there may still be specialist bad credit mortgage lenders willing to give you a chance.
Here’s what you need to know about getting a home loan when you have a bad credit score:
What Is a Bad Credit Mortgage?
A bad credit mortgage is simply a mortgage designed for people with bad credit scores. These home loans may work in the same way as any other mortgage but will have a higher interest rate or other conditions attached to them to reflect the lender's risk by lending to you.
How Will Bad Credit Affect Your Chances of Getting Approved?
If you have a bad credit history, it is likely that you will need to show a lender that you have been making regular payments on your current debts. If you have missed payments or your credit history is riddled with late payments, the lender will probably turn you down. However, some lenders may be willing to consider applications with weaker credit histories.
What Are the Advantages of Buying a Property with Bad Credit?
There are several benefits to getting a bad credit mortgage. First of all, it may be possible to get lower mortgage rates than you could previously, particularly if you have some savings or good credit history. Another advantage is that lenders may offer you more flexibility when you come to payments. For example, it may be possible for you to make smaller payments over a longer period.
What Are the Disadvantages of Buying a Property with Bad Credit?
Unfortunately, obtaining a bad credit mortgage can mean that you need to pay a higher mortgage rate. It will, however, always be possible to negotiate a lower mortgage rate with a lender. So, while you may pay more interest on your home loan, it may still be possible to save money over a lower-cost mortgage.
How Can You Improve Your Credit Score?
There are a number of things you can do to help improve your credit score. Firstly, make sure that you keep track of any payments you make. Also, ensure that you don’t take on too many credit lines. For example, if you want a mortgage, you should not be applying for credit cards at the same time. However, if you do apply for two or more credit cards, you should ensure that you only ever use the cards for the amount you can afford to pay off quickly.
Conclusion
If you’re considering whether to get a home loan with bad credit, it’s important to understand the implications of any deal you’re offered. Make sure that you check that a mortgage is the right option for you and that the deal will help you to meet your mortgage repayments over the long term.
Wealthy You is a trusted mortgage broker in Sydney that can provide you with loan solutions that fit your needs. Contact us today to learn more about our loan services!
