How To Secure A Mortgage Loan With Poor Credit History

If you have a poor credit history or a low credit score, the chances are you'll have difficulty in getting a mortgage loan.  Lenders have suffered at the hands of bad debtors during the recent economic downturn and have become increasingly reluctant to accept the risk of those with a less than perfect credit rating.  Fortunately, there are some steps you can take to increase your chances of securing a mortgage loan, even if your credit rating is poor.

Check your credit report

Before you apply for a mortgage, obtain a copy of your credit report and check that everything on it is accurate.  You can access your credit report online for a small fee, and a quick Google search will bring up all the major companies that provide this service. 

If you find any inconsistencies or inaccuracies on the report, write to the credit company to get the information updated or amended.  A prospective mortgage lender could refuse you a loan simply because the information provided to them on your credit report is out of date, and shows that you have a debt which has in fact been discharged.

Get rid of your debts

Get rid of all your credit card balances and any other loans or overdrafts before you apply for a mortgage. Even if you have a poor credit rating, you could still be considered for a mortgage loan if you can show that you have no other debts. 

Demonstrate a regular income

It's crucial to show that you have a steady income if you are to be successful in applying for a mortgage.  The lender wants to see that you earn enough each month to comfortably cover your mortgage repayments.  Make sure you have at least six recent monthly payslips to accompany your mortgage application. 

A higher deposit

Lenders like to see a healthy deposit being put up together with your mortgage application.  This demonstrates that you are serious about investing financially in a property as well as showing that you have the ability to save.

Be prepared to explain your past credit problems

Sometimes, offering an explanation to a lender or mortgage broker as to why you ended up with such a poor credit report can help.  For instance, you might have gone through a difficult and expensive divorce, or suffered a major illness.  Whilst this will not excuse your poor credit, at least it will put your circumstances in context.

Make sure that you reinforce your improved financial position; mention that you now have no debts, and that your salary is considerably higher than it was when you experienced the problems that have led to your poor credit history.  All this information will help to reassure the lender that you are now in a much stronger and more stable position to take on a mortgage loan.

Find a guarantor

If you have a family member or partner with good credit who is prepared to act as a guarantor, you might be able to qualify for a mortgage.  However, this is a pretty big ask and you must remember that if you default on your mortgage payments, your guarantor will be liable for your debt.

In conclusion

If you have a poor credit rating, it might be worth postponing your mortgage enquiry for two or three years.  This will give you time to discharge any outstanding debts and repair your credit rating.  A bad credit mortgage will carry a higher interest rate and will therefore cost you more in the long run.  Waiting a few years could mean that you will stand a better chance of qualifying for a traditional mortgage which will be cheaper. 

If you're thinking of applying for a mortgage and have a less than perfect credit history, consult your mortgage broker such as Power & Associates for advice.