First Time Buyer Mortgage Bad Credit History
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First Time Buyer Mortgage Bad Credit History
Luke Grosse explains how the mortgage process works if you are a First Time Buyer with bad credit.
Can you buy a house with bad credit as a First Time Buyer?
Yes, absolutely. Typically, if people do have any sort of adverse credit, it can just mean that they potentially need a higher deposit.
Bad credit can mean a number of things. It could be simple things like the odd missed payment from a few years ago, all the way up to defaults and CCJs. Your mortgage options will depend on the severity of the adverse credit and what you have in the way of a deposit.
But the good news is there are quite a few lenders that do help people with any sort of adverse credit.
Can I get a mortgage as a First Time Buyer if I have a CCJ, IVA, default, a bankruptcy or if I have payday loans?
Yes. You can certainly do that as a First Time Buyer.
That list includes various levels of adverse credit. If you had, for example, quite a small County Court Judgement (CCJ) of £200 – like a parking fine, which we see quite often – that’s fairly minor. Potentially, you might be OK to have a smaller deposit with that.
An Individual Voluntary Agreement (IVA) or a previous bankruptcy are quite serious forms of adverse credit. You could potentially still proceed, but you would likely need a higher deposit of perhaps 25% or 30%.
With defaults or payday loans, it depends exactly when they were registered. The more historical they are will help in terms of reducing the deposit needed.
If the defaults were a couple of years ago, you might be looking at a 10% or 15% deposit, but if they were older than that, you could potentially get away with like a 10% or even a 5% deposit.
Do First Time Buyers need a credit score? Can I get a mortgage if my credit score is very poor?
Everyone will have a credit score. Ultimately, it’s a number that is generated by a credit reference agency. If you do have any adverse credit, that’s going to take a hit.
An Experian score of 999 is essentially a perfect credit score. That would indicate that there’s no adverse credit on a credit file. Somebody with defaults, CCJs, or payday loans might have a credit score in the region of 400 or 500.
Most of the high-street lenders automatically credit score, and a rating of 400 would likely fail their internal requirements. But the good news is that there are specialist lenders who consider adverse credit, and they do not credit score at all.
Hypothetically, you could have a score of one out of 999, but as long as you met their criteria, they could still consider you for a mortgage.
What is the most suitable home loan for a First Time Buyer with bad credit?
Ultimately that’s going to depend on your particular circumstances, including what you have in the way of a deposit. First Time Buyers – or anyone purchasing a property – always need to consider all the costs involved, including solicitors, lender fees and moving costs.
Also, when you get into the property you might need work doing. So you might want to put down a lower deposit initially. Ultimately, what’s going to be most suitable for you is finding a lender that can accept the adverse credit and let you put down the lowest deposit possible.
If you are able to put down a bigger deposit, you can potentially get more rates and more lenders. But we recognise that you might need to keep money back for the property, to replace a kitchen or bathroom. That won’t necessarily come cheap.
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How much deposit will I need? How much can I borrow if I have bad credit?
It really depends on exactly what the adverse was and when. With more serious forms of adverse credit, like bankruptcy and IVAs, lenders are likely to need quite a high deposit of 25% or 30% as a minimum.
For something more minor, like a low value CCJ from a couple of years ago, you might be able to get away with a 10% or 15% deposit. It just depends on your exact set of circumstances.
What’s the process of applying for a mortgage with bad credit as a First Time Buyer?
There aren’t really any differences for a First Time Buyer as opposed to a home mover.
A home mover, of course, will have equity within their property, whereas a First Time Buyer would need a deposit. That might be your own savings or a gift from your immediate family. Either should be absolutely fine with lenders.
Some specialist adverse credit lenders need more documentation than a mainstream lender. For example, if you’ve recently started a new job, most high-street lenders are often okay with that whereas with specialist lenders, you may need to be outside any probationary period.
What steps can I take to improve my chances of getting a mortgage with bad credit as a First Time Buyer?
Even when you’re just considering the process, have a look at your credit score. With any of the credit reference agencies, like Experian or CheckMyFile, you can sometimes get a free trial for 30 days – you can then cancel and not pay anything.
You can look at your credit record and see exactly what’s on there. If you see anything erroneous, you can deal with it early on. Some people bury their heads in the sand – they know it’s there, but they won’t take action.
A lot of adverse events occur because information goes to previous addresses. It’s really important that if you’re renting and you move every 12 months or so, to update your address with all your utility providers and financial contracts.
If parking fines or water bills go to a previous address, obviously you’re not aware of that. We often talk to people who thought they had no credit issues at all, then went to their bank and were declined for a mortgage because of adverse credit. Nine times out of 10 that’s because a bill has gone to a previous address.
So make sure your address is up to date and check the credit report to see what’s on there. And, if you can maximise your deposit, that will give you more lender options.
How can a mortgage broker help with First Time Buyer Bad Credit?
If you have adverse credit it’s always worth reaching out to a broker and having a look at that credit report. A lot of people don’t know what they’re looking for, but I look at credit reports all day – so I’ll be able to explain exactly what’s on there.
If there are any issues we can address those. Again, a common thing we see is where people have a default, perhaps on a water bill. They might be unaware of it, and it might just be a couple of hundred pounds.
It’s usually worth biting the bullet and paying that off. Most of the time, that will improve your credit score and open up more options to you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.