Poor credit mortgages: Not all bad

The days when having a poor credit rating meant being unable to get that dream mortgage appear to well and truly over. The mortgage market is always changing and evolving, and usually for the better.

Poor credit scores are no longer a perfect indication of someone’s credit worthiness. Tough financial times can, in today’s world, affect anyone at anytime and many lenders have recognised a niche in the UK mortgage market and now offer mortgagees for all circumstances

Bad credit mortgages come in various forms:

Sub-prime loans

B,C,D,E loans

No-documentation loans

Credit-challenged loans etc..

In years gone by, it was considered both degrading and desperate to apply for a bad credit mortgage and in fairness there were many factors to add substance to these opinions.

To understand how the market has changed it is best to first dispel some of the myths associated with bad credit mortgages. Firstly:

Interest rates are sky high – Actually in today’s market rates have become more competitive and affordable. However, they are still comparatively more expensive than conventional mortgages but then again if you have a poor credit rating you still pose a greater credit risk to the lender compared with someone who has a good to excellent score.

Too many points are charged – this is not the case at all. Some people with credit scores as low as 580 can still obtain a mortgage with no points upfront. ( Points – one mortgage point equals one per cent of the loan amount. Lenders consider mortgage points as interest that pay in advance.)

A large deposit/down payment may be required. – This really depends on the lender who is processing the loan. Some UK mortgage lenders may well sanction the loan with just 20% or less of the loan amount as a down payment. Great news for those with bad credit.

The underwriting guidelines for sub-prime loans are constantly expanding in order to cover more people, thus allowing those with poor credit scores to be able to get that dream mortgage.

If you are able to obtain a bad credit mortgage, it will also give you the opportunity to improve your credit rating provided you make your monthly repayments. Even those who have filed for bankruptcy can still get a mortgage at an affordable rate as some lenders can accommodate those who have declared bankruptcy by providing an interest rate lock.

In essence, there are now more mortgage deals than ever out there and suitable for all financial situations.