Like stabbing your ice climbing boots into the side out of a mountain, hoping not to slip down and fall, hunting for a mortgage that works in your favor is tiring. Even more so when you have bad credit after going through some kind of financial strife in your life.
However, we all know that bad credit ratings and a checkered financial history is not easily forgotten by bank and loan companies. We must take full responsibility of what happened that lead us down this alleyway but strive to not let our past actions dwell in our present.
Despite having bad credit, there are ways of landing a mortgage which will help you to get out of the starting blocks and into the homeowner lane. Above all else during this hunting period, you have to be ready to continually get denied. This is going to be mentally exhausting and you’re going to want to give up or possibly give in and take a bad deal.
The key here is to be consistent in your approach and always see the positive in any mortgage deal that you are getting, as long as it can meet some basic requirements, such as not overreaching in interest rates.
Lower deposits
There was a time when financial institutions wanted to be extra cautious and not agree to mortgages with people that showed they were in the red, financially speaking. However, where there is a will there’s a way. And that will has come from consumers actually because demographics have forced lending companies to readjust. There are simply more people in the world today and therefore in the market. This means that the demand is very high for homes. Any mortgage service company or bank that is not willing to try and use this market overabundance to their advantage somehow is missing a huge opportunity.
So what does this translate into? Well, lenders want to keep a steady stream of business flowing, including those with bad credit. So what you see nowadays is that the initial deposit of a mortgage has drastically dropped. In the past, the deposit was a sizeable chunk of money in comparison to the overall mortgage.
However, now there are LTV schemes, which stands for loan-to-value. If you can bring a decent-sized percentage of money, pertaining to the value of a home forward and put it into the transaction, the loan company or bank you go to is willing to give you a mortgage that completes the rest of the value. The deposit for this mortgage can sometimes be as low as 5%, since you have shown you are serious about the purchase of the home, by putting up a large portion of the money yourself. Even if you have bad credit, but you have saved up since, you have this option open to you.
Related: Is a Mortgage a Truly Wise Investment?
A jolt of support
Contrary to what you may think, actually getting on the housing ladder in some way at all, helps to improve your credit rating. First of all think about what getting a mortgage for a house symbolizes in your life. You’re making a huge investment into a land and or property, that will definitely be for the long-term, and you are taking on risks that back up your actions. Lenders love to see this from anyone but especially from people with low credit ratings. Rather than wait for their rating to heal naturally and due to time passed, you are taking your own money and putting it into a stable financial holding, i.e. a house.
If you are struggling with bad credit issues, there’s so much advice everywhere that helps you to understand, you have positives in your favor. For one thing, you may be eligible for a shared ownership scheme which can be government-led. You own half of the property, but for the other half, you pay rent for. The money you pay, goes to a local authority such as a council. This does still mean you have to get out a mortgage for the half you technically own but it will be significantly less than a normal mortgage for complete ownership.
Related: What You Need To Know To Get A Mortgage
Moving paths
One of the most common reasons for a bad credit rating is the lack of stable job. Unemployment has consequences on your financial capabilities and can worsen the longer you are without a full-time or part-time job.
Without money coming in, you’re more likely to get into debt and eat into your savings, as well as no longer be able to keep up with payments for things such as credit cards, phone contracts and car payments. However, if you are accepted for a new job but you need to urgently change your mortgage scheme, this is a good reason to hunt for a mortgage specifically geared toward bad credit ratings.
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If your new job is going to pay less or you simply will have less disposable income at the end of the month, switching to a bad credit scheme will allow you to remain in your home. Lenders don’t want to turf out their clients and have to initiate their collateral agreement with you.
Related: 5 Ways To Reduce Your Stress When Buying A House
Selling a home out from underneath someone that can make some kind of payment is just bad for business. The mortgages you’ll likely get in this kind of scenario will be extended long-term variants with almost certainly higher interest rates.
The payments you make will be smaller, but they will carry on for a lot longer and in the end you will be paying a lot more due to the accumulation of the higher interest. The positive is, your circumstances are taken seriously and accommodations can be made so you can stay in your home and of course, still on the path to owning it in the end.
Bad credit ratings are like the ghouls of the financial world. They follow you around everywhere you go, trying to scare you wherever possible. Mortgages are seen as stable long-term investments so even with a bad credit rating, you have great advantages to be on your way to owning your own home.
The LTV scheme is particularly popular as you simply go around your own credit rating to show you have the financial muscle and will to beholden yourself to a property.