Can you get a mortgage with bad credit?

Overcoming Bad Credit: A Step-by-Step Guide to Getting a Mortgage and Achieving Homeownership

Can you get a mortgage with bad credit?

The short answer is yes, you can get a mortgage with bad credit. However, the process may be more challenging, and you may face higher interest rates and stricter loan terms. Bad credit can make it more difficult to get approved for a mortgage because it signals to lenders that you may not be able to make your mortgage payments on time.

What factors do lenders consider when approving a mortgage?

When approving a mortgage, lenders consider several factors, including credit score, debt-to-income ratio, and employment history. Here's a breakdown of what each factor entails:

1. Credit score

Your credit score is a three-digit number that represents your creditworthiness. It's based on your credit history and is calculated using a variety of factors, such as your payment history, outstanding debts, and length of credit history. Lenders use your credit score to assess your risk as a borrower. A high credit score indicates that you're a responsible borrower and are more likely to make your mortgage payments on time. On the other hand, a low credit score signals to lenders that you may have a history of missed payments or defaults, making you a higher risk.

1. Debt-to-income ratio

Your debt-to-income ratio is the percentage of your monthly income that goes towards paying off debt. Lenders use this ratio to assess your ability to manage debt and make your mortgage payments on time. A high debt-to-income ratio indicates that you have a lot of debt relative to your income, making it harder for you to make your mortgage payments. Lenders generally prefer borrowers with a debt-to-income ratio of 43% or less.

1. Employment history

Lenders look at your employment history to assess your stability and ability to make your mortgage payments. They prefer borrowers who have a steady job with a consistent income. If you're self-employed, lenders will require your tax return details to verify your income.

How can you improve your chances of getting a mortgage with bad credit?

Here are some steps you can take to improve your chances of getting a mortgage with bad credit:

1. Check your credit report for errors and dispute any inaccuracies.

2. Work on improving your credit score by paying off outstanding debts, repaying your full credit card balance each month, and paying your bills on time.

3. Look to use a Mortgage Broker, like our team of experts at Major Financial Services, who have access to the whole of market lenders and specialise in impaired credit mortgages.

4. Increase your down payment to lower your monthly payments and reduce your risk to the mortgage lender. A larger deposit can make up for a lower credit score when applying for a mortgage. A deposit of 20% or more can increase your chances of getting approved for a mortgage with bad credit history.

In conclusion, it's possible to get a mortgage with bad credit, but it may be more challenging and come with higher interest rates, fee’s and stricter loan terms. Lenders consider several factors when approving a mortgage, such as credit score, debt-to-income ratio, and employment history. To improve your chances of getting a mortgage with bad credit, check your credit report for errors, work on improving your credit score, increase your down payment and work with a Mortgage Adviser, who is able to offer whole market mortgage advise and who specialise’s in impaired credit mortgages.