7 Tips For Getting A Bad Credit Mortgage Application Approved

Financing is difficult even for the best of borrowers. Lenders are on edge, tight with money and very sketchy about how they process applications. They don’t want to be played so they play their cards close to their chest.

That’s a problem for you, but it is one that you can move past to obtain a mortgage, even if you’re shackled with bad credit.

So let’s get started and get your homeowner loan approved!

Show stability

Stability applies to both your job and how you manage debts. It’s not wise to take on a mortgage when you’ve no credit history. First off, doing that means you’ve no real experience in money management, budgeting, and paying on time, which can be a shock to the system when we finally start doing grown-up things, but more important is that lenders need to know you can manage your money. They want to see your credit report with a long-proven record of on-time payments.

Naturally, with a bad credit rating, you’re off to a trickier start, so the next best thing is to turn your weakness around and play it up by demonstrating that the accounts are being paid. It doesn’t matter by how much, so long as your history shows that when you’ve found yourself with money problems, you have addressed them head-on by making alternative payment arrangements and not run away, buried your head in the sand and hoped the creditors would get off your back.

Stability also applies to your work history. A few years working in your local KFC is much better than six months with a new employer with higher earnings, regardless the amount.

Pay down your debts to increase your disposable income

You need to have money to play the homeowner game. It’s not an option because you must pass a mortgage affordability test. That’s easier said than done, though.

One of the ways that will definitely help you meet that requirement is to have less debt. It’s not just your mortgage that’s considered, as it’s all your debt; it’s your cost of living, which is higher if you’re living outside of your means.

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As a rule of thumb, run with proportions, some financial experts will advise that no higher than a 30% proportion of your income should be spent on mortgage payments. However, to get more specific on debt proportions, Virginia Wallis of the Guardian answered a reader’s question way back in 2010, and the advice remains relevant today.

“…the total amount you pay towards your mortgage should not exceed 28% of your gross (rather than net) income. And you should ensure you don’t exceed 36% of gross income for the total amount you spend on all borrowing, including a mortgage.”

Grab your calculator or the app on your smartphone and crunch the numbers to reach the total debt you’re spending.

Be mindful of a poor credit history because you do not want to sail close to the larger end of 36% of your income being spent on debt repayments. Aim to get that figure as low as possible. The lower it is, the better your chances of getting approved homeowner loans.

Be ready with an income and expenses spreadsheet.

Nothing is going to be more uncomfortable for a lender assessing your risk level than discovering you haven’t a clue what you spend on any given month. Have a spreadsheet detailing your monthly bills, including what you spend regularly daily. If you’re 80p a day for a newspaper, include it. £1.50 every few days for milk, include it. Let creditors see that you know exactly where your money goes.

Save loads

Lenders love big down payments because it’s less risky for them and more risky to you. The higher a deposit you can make, the better because you’re asking for less, and the security on the property you buy will have a higher value, so you will have higher home equity, meaning you’ll have more to lose if you default on the payments.

Investigate Government Schemes

The government-run initiatives on occasion. Schemes such as Shared Ownership, Shared Equity, and the Starter Home Scheme may be options; however, not all are suited to those with bad credit. It’s worth knowing what’s available as you could find that if you’re between the ages of 23 and 40 years old, then from some point in 2018, should the New Starter Home Scheme go ahead as planned, then you could get a 20% discount off the cost of a new-build home, lowering the mortgage amount you would need to secure. That lower cost you’re asking for could help sway lenders to approve your bad credit secured loan.

The only current scheme that won’t work for those with bad credit is the government’s Rent to Buy scheme as you need to have a good credit score.

Use the Notice of Corrections on credit files wisely

A Notice of Correction (NOC) can be added to your credit file to explain information that isn’t accurate or to explain that you had extenuating circumstances.

An alternative is to try with an explanatory letter; however, the formal route is to add an entry to your credit file explaining extenuating circumstances to your credit file or to address non-factual information contained in your credit history.

Taking this action means creditors must review your application. This will happen because a NOC on your credit report will eliminate your application from automated credit scoring processes.

The problem you’ll find is that you have a limited word number. You only get 200 words to explain yourself. So, in addition to a NOC, provide further information by attaching an explanatory letter to your application so that the lender reviewing your circumstances has complete clarity.

To be sure you’re using the NOC approach wisely you can read our post “Does a Notice of Correction Help or Hinder?” Because it can do both depending on how and why you use it.

Close unused credit accounts

Any credit you have available to you is considered for a credit assessment. Your debt ratio is based on credit available and not your total debts outstanding. For that reason, if you have had a credit card in the past and cut it up and left the account dormant, that’s still officially a line of credit you have. You can call up and get a new card then use that to run up debt.

Mail order companies are another thing to consider as many will extend a certain amount of finance, such as £1,500 and even increase that periodically if you prove you’re good with managing your account by repaying always on time.

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You could be extended finance with a limit of £300 on a first purchase, then regularly use that account and have your maximum borrowing limit increased from £300 to £3,000. It is worth reviewing any credit accounts you have, check the limits in place for each and whatever you don’t use, contact the company to request the account be closed.

By closing dormant accounts that give you access to credit, you will lower your available debt and thereby increase the amount you can afford to borrow.

Related Reading:

Are these mortgage application tips relevant to my potential secured loan application?

There are a lot of people asking can i get a homeowner loan with bad credit? But the key to getting one is a good application. In many ways a secured loan application is very similar to a mortgage application so the tips are broadly valid.

A Deeper Dive into Homeowner Loans, RIO Mortgages, and Retirement Interest Only Mortgages in the UK

The UK’s financial landscape is replete with options that cater to a wide range of homeowners, from those just stepping onto the property ladder to retirees aiming to make the most of their golden years. Among the myriad of choices available, homeowner loans, Retirement Interest Only (RIO) mortgages, and retirement interest-only mortgages stand out as significant tools. Let’s unravel these options, understanding their nuances and how they can best serve UK residents.

Understanding Homeowner Loans

Homeowner loans, often called secured loans, are borrowing methods where the equity in your home backs the loan. This means that your property acts as a security for the loan.

Why opt for homeowner loans?

Higher Borrowing Limits: Because these loans are secured against your home, lenders often offer higher amounts compared to unsecured loans.
Flexible Repayment Terms: Homeowner loans typically come with longer repayment periods, which can reduce monthly repayments.
Possibility of Better Rates: The secured nature of these loans can often lead to more competitive interest rates compared to unsecured counterparts.

Things to be cautious about:

Risk to Property: Since the loan is secured against your home, failure to meet repayments could risk repossession.
Interest Accumulation: Borrowing over longer terms can lead to more interest paid over the life of the loan.

Fixed Rate Loan: For those who prioritise stability in their financial planning, opting for a fixed rate loan can provide peace of mind by locking in an interest rate for a set period, ensuring consistent monthly repayments.

RIO Mortgages: What Are They?

RIO mortgages, short for Retirement Interest Only mortgages, are specifically designed for older borrowers, typically retirees. Unlike traditional mortgages, where both capital and interest need to be repaid, RIOs only require borrowers to cover the interest monthly.

Why consider RIOs?

No Set End Date: These mortgages can last indefinitely, usually until a significant life event such as moving into care or the borrower’s passing.
Financial Flexibility: As only interest is paid, monthly repayments can be lower than traditional repayment mortgages.

Points to ponder:

Capital Debt Remains: The principal amount borrowed isn’t reduced over time, impacting inheritance planning.
Income Requirement: Lenders will require proof of steady retirement income to ensure interest can be consistently paid.

Mortgages For Over 60: One might think that age could be a barrier to securing a mortgage, but financial products like over 55 are evidence that options are tailored for those in their later years.

Mortgages For The Over 70S: Age-specific mortgages are becoming increasingly popular, with offerings such as mortgages for over 70s ensuring that homeowners in their 70s and beyond have financial avenues open.

How To Get Approved For A Mortgage in 2024

The key techniques for how to get approved for a mortgage in 2024 are likely to be more critical, especially for Peterlee houses for sale under 20k, as they are hard to mortgage.

Retirement Interest Only Mortgages: The Essentials

These are a subset of RIO mortgages designed for retirees but with some distinct characteristics. The interest is paid monthly, and the capital amount is repaid when the house is sold, the borrower moves into care, or upon death.

Benefits:

Affordability: As only interest is repaid monthly, this option can be more affordable for retirees with limited monthly income.
No Set Tenure: The loan offers flexibility and no defined end date.

Limitations:

Equity Reduction: As the principal amount isn’t being repaid, the equity in the home can be gradually eroded, especially if house prices don’t rise.
Income Scrutiny: Lenders will closely assess post-retirement income to ensure borrowers can meet monthly interest payments.

Best Mortgage Deals 2024: For those looking to change their mortgage in the coming year, staying updated with the latest re mortgage rates can help homeowners find the best fit for their unique needs.

Utb Bank: For those exploring secured loan options, the offerings from United Trust Bank secured loan have been recognised for their competitive terms and reliability.

Can I Release Equity From My House Under 55: Homeowners in their early 50s or younger might ponder their mortgage options, especially regarding equity release. By delving into can i get a 30 year mortgage at age 55, one can find the answers and perhaps the solutions they seek.