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Is buying a house with bad credit/no credit possible? This week we’ve taken some time to really dig into the issues surrounding mortgages, bad credit and house-ownership to get you a definitive answer.
Let’s cut right to the chase, shall we?
Buying a house with bad credit/no credit isn’t easy — in fact, far from it — but it isn’t impossible.
So, if you’re getting sick and tired of renting or living with your parents but are worried that you won’t be able to buy a house because your credit score isn’t up to scratch, don’t give up hope just yet.
We’ve put together a few ways that — with a bit of luck — you’ll be able to find a lender, start booking viewings and move into your new home in no time.
But, first things first, what is a bad credit mortgage?
If you’re thinking of buying a house with bad credit/no credit, you’re probably going to be looking at bad credit mortgages.
Now, before we go on, we should clear something up: technically, a bad credit mortgage is exactly the same as a normal mortgage.
They have a different name and usually come with higher interest rates and charges, but for all intents and purposes, they’re regular mortgages provided by lenders who specialise in mortgages for people buying a house with bad credit/no credit.
To check out a list of bad credit mortgage providers, head to Money.co.uk and take a look at their comprehensive list.
Hold on, why does buying a house with bad credit/no credit mean that you get charged more?
Just like with any kind of borrowing, lenders make a decision to lend you money based on your credit score.
A credit score acts as shorthand for the chances that you’ll pay the debt back, in full, without any problems. The lower your credit score, the greater the risk you pose to a lender.
And so, if you’re thinking of buying a house with bad credit/no credit, then you’re likely to encounter higher fees and interest rates as the lender’s way of offsetting the financial risk they’re taking to lend you the money.
But, there are a few ways that you can improve the situation a little and get a better deal:
Save up a larger deposit
If you want to really improve your chances of buying a house with bad credit/no credit, having a deposit of 15%-30% would really help your situation.
Not only does a larger deposit demonstrate some level of financial responsibility, but it also means that the amount you’re attempting to borrow is lower.
As such, you immediately present less of a risk, making your application more likely to succeed.
Check your credit file
Before you start applying for mortgages, it’s a good idea to check your credit report.
Your credit file contains all of the information on your credit and borrowing history. It provides the basis for your credit score.
As such, if there are mistakes on your credit report, it could have a knock-on effect on your credit score, which could have a knock-on effect on whether you get approved to borrow money.
If you find mistakes on your credit file, getting them fixed can really help you repair your credit score. Here’s a great guide from Experian on how to check your file and fix any mistakes you find.
Consider a guarantor mortgage
Like guarantor loans, a guarantor mortgage (also known as a family assisted mortgage) is a way of securing a mortgage and buying a house with bad credit/no credit.
And, exactly the same as the guarantor loans we offer, a guarantor mortgage requires somebody to agree to pay the mortgage repayments if, for whatever reason, you can’t.
However, your guarantor will have no legal right to the house and won’t be named on the deeds. Instead, a guarantor mortgage is more considered a way for friends and family to help people they’re close to mitigate some of the risk they present to lenders and get access to better borrowing terms.
You can use Experian’s mortgage comparison tool to find guarantor mortgages that suit you. (And, in some cases, you can even find 100% mortgages; mortgages that don’t require deposits!)
Buying a house with bad credit/no credit isn’t a small feat. It requires a lot of work to repair your credit score, search around for lenders, save up the deposit, look for a guarantor, etc… but in the end, when you pick up the keys and open the door to your first house, it’ll all be worth it.
- Author The Bamboo Team
- Posted 3 June 2019