First Time Buyer Bad Credit History

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First Time Buyer Bad Credit History

First Time Buyer Bad Credit History

Lewis Shaw joins us once again to explain how the mortgage process works if you are a First Time Buyer with a bad credit history.

 

Can you buy a house with bad credit as a First Time Buyer?

Yes, but it depends. If you’re a First-Time Buyer and you have bad credit, you can still buy a home, but we’ll need to know exactly what that bad credit was and when it happened.
You may need a slightly higher deposit. But even with bad credit, you can still buy a home as a First Time Buyer.

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?

You can get a mortgage as a First-Time Buyer in many of these situations—we’ll take them one at a time.

Suppose you have a County Court Judgement (CCJ). In that case, it is possible to get a mortgage, particularly if the CCJ is three years old or more and it’s satisfied. A CCJ can be satisfied or unsatisfied, which means it has not been repaid. But yes, a CCJ isn’t the be-all and end-all for a First Time Buyer.

With an IVA as a First Time Buyer, again it’s possible. An IVA is an individual voluntary arrangement – a form of insolvency. Insolvency practitioners handle IVAs, and they are specific to people who have had problems in the past. It’s still possible to get a mortgage.

We’re going to be using specialist mortgage lenders, which generally means higher interest rates and a higher deposit—typically 20% to 25%. That IVA will need to have been completed. IVAs are quite complex, so it’s important to speak to a broker early before you think about buying a home.

We need to understand your situation, the circumstances around the IVA and the deposit level you’ll need. You can still buy a home, but there will be other hurdles to clear, and we will need an in-depth conversation.

If you are a First-Time Buyer with a default, again, it varies from lender to lender. Every lender has specific credit scoring systems, and some are better at dealing with bad credit than others. You’re more likely to be accepted for a mortgage if the defaults are older—three to five years old is much better than if they were just six months ago.

Some lenders will consider applications six months after a default if it has been satisfied. Again, you must mention that to your mortgage broker so that we can take it into account.

In terms of bankruptcy for a First Time Buyer, some lenders will accommodate that. Generally, you must have been discharged from bankruptcy at least one year ago and may require a bigger deposit of 15% or more. The longer ago you’ve been discharged from bankruptcy, the better.

Finally, can you get a mortgage as a First Time Buyer if you have payday loans? That varies by lender. If it’s a payday loan from a few years ago, you should be fine as long as it’s been paid off. If you’re using payday loans regularly, lenders may treat that as a sign of financial distress.

Some lenders will approve you as a First Time Buyer with payday loans, but we need to understand the reason for the loans. Are they historic? It’s certainly something to highlight to your mortgage broker. When you come to apply once you’ve found that perfect home, you’re not going to fall at the first hurdle.

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As Mansfield & Ashfield’s most trusted mortgage advisors, we help first-time buyers and people looking to move home or remortgage, no matter the circumstances.

Do First Time Buyers need a credit score? Can I get a mortgage if my credit score is very poor?

As a First Time Buyer, you will have a credit score. Every person over the age of 18 in the UK who has an address and a bank account will have a credit score.

Credit scores are based on whether you’ve made payments on time and whether everything is registered correctly at your address. Your credit score is an indication of your creditworthiness and reliability. For example, Do you always repay credit on time?

You need a credit score to apply for a mortgage because a lender has to understand what type of risk you are. Are they going to get their money back? But whatever that score is, don’t obsess about it or panic.

Lenders aren’t just looking at a score from one of the credit reference agencies. They have their own unique systems that determine whether they’re going to accept you or not. So, you can still get a mortgage if your credit score is very poor.

Many people worry about their credit scores. Still, even if they are low, a mortgage lender is more concerned with your credit conduct. What’s the reason for that poor credit score? If you’re young and never had any credit, your score may not be great. This means the credit reference agencies don’t know how to score you; however, it’s not something to be worried about.

A low score could be because you’ve had missed payments, a CCJ or a default – or just because there’s not much information about you. Don’t worry too much. You can still get a mortgage if your credit score is very poor.

What is the most suitable home loan for a First Time Buyer with bad credit?

It will depend upon the type of bad credit you have, when it happened, and whether it’s been repaid. We’ll determine the most appropriate mortgage lender for you as a First-Time Buyer. We will take into consideration your bad credit and the deposit you have and search through all the many lenders that we have access to.

How much deposit will I need? How much can I borrow if I have bad credit?

If you’re a First Time Buyer with bad credit, the deposit you’ll need depends on the type of bad credit you have. If it’s old – five or six years ago, maybe – it shouldn’t have much of an impact on your credit profile, and your deposit level might be similar to someone with good credit.

If you have very recent CCJs or defaults in the last two years, you may need a 15% or 20% deposit. It will also matter if that bad credit has been repaid.

Let’s say you had a CCJ for £1,000 12 months ago. If it’s been paid off in full and is the only thing on your credit profile, your deposit requirements probably won’t be much higher.

But if you’ve got four defaults and four CCJs and you’re in arrears on a credit card, you may need 20%, 25%, or, in some cases, 30%. The amount of deposit is so varied. The only way to find out is to speak to a broker who understands this. We can discuss in detail how much deposit you’ll need and put a plan together for you.

What’s the process of applying for a mortgage with bad credit as a First Time Buyer?

The process is exactly the same as if you didn’t have bad credit. We would consult with you and ask you to fill out a questionnaire, verify your ID, and provide us with your credit report. That’s important if you’ve got bad credit.

We also need your payslips, bank statements, and tax documentation if you’re self-employed. We would take all that information and search our huge list of lenders to match you to one that will approve you based on your deposit, the type of bad credit, and how much you need to borrow.

It just means there’s a little bit more work to do upfront to ensure that we get it right the first time.

What steps can a First Time Buyer take to improve their chances of getting a mortgage with bad credit?

We can divide this into things you can do immediately and things that may take a little bit more time.

Immediate actions you could take if you’re a First Time Buyer with bad credit are to ensure you’re registered on the electoral roll. Next, check your credit report for errors. Third, close any unused credit accounts. Number four would be to avoid new credit applications unless you need them.

Five would be to try to get up to date on all your payments and ensure you’re paying everything on time. These are all things you could do straight away.

In terms of longer-term steps, those would include saving a larger deposit and maintaining a stable employment history—which is a big thing. Adverse credit lenders or bad credit lenders like to make sure that you’ve got a stable job and a stable income.

Hopefully, They will approve your mortgage, but they want to make sure you’re able to repay it. Maintaining a stable employment history is really important.

If your bad credit is now paid off and it’s just on your credit profile but no longer having a negative impact, you could consider using a credit card to build your credit profile. There are specific credit-builder cards out there. Another would be to pay more than the minimum on your debts if you are still paying off some bad credit. Try to get any debts cleared as soon as possible.

How can a mortgage broker help? Have you got anything else to add?

We specialise in helping First Time Buyers with bad credit find a mortgage. We’ve got access to lenders that you won’t be able to approach. Many of them don’t deal with consumers directly.
We also know which lenders accept specific bad credit issues. Every bad credit lender has a range of mortgages available, and it’s about understanding your credit history and matching you to the lender for that specific issue.

Another way a mortgage broker can help is by effectively presenting your case. We present you to a lender’s underwriter in the best possible light so they can really understand what happened, what you’ve done to put that right, and hopefully get that mortgage approved. This also helps you prepare before we make the application.

When we talk to First Time Buyers with bad credit, we often put a plan in place for 6 to 12 months if they can’t get a mortgage right now. However, this depends on the situation. We can help you prepare so that getting a mortgage is a little smoother.

We save a lot of time and heartache because it’s daunting enough when you’re a First Time Buyer. If you’re a First Time Buyer with bad credit, you don’t want to approach 10, 15 or 20 different lenders without understanding what they do. We know how they will work and can save time and heartache by picking the right lender at the start.

It gives you more confidence as a First-Time Buyer and will certainly relieve a lot of stress. That’s one of the big things our customers really appreciate, as we can normally get that right the first time.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.