If you are looking to get on the property ladder but feel you can’t because have a poor or low credit score, don’t panic. There are several ways of getting a home loan with a low rating, which we’re going to take a look at today. Read on to find out everything you need to do.
Check your credit score
The first thing to do is find out exactly what your credit rating is. You will need to apply to see your report from one of the major credit reference agencies, such as Experian. They usually have a free trial, so it should only cost you time and effort. Make sure that you remember to cancel your subscription before the trial period is up. So what, exactly, will your credit report tell you?
Your credit score is something that lenders use to work out your credibility as a borrower. You’ll need to get a score over 750 to be seen as a responsible borrower – and you’ll get better interest rates. However, if your score is anything south of 600, you will be viewed as a risk. Lines of credit will usually be taken away from you, and you might struggle to get a home loan if your score is below 660. But, it is possible.
Check your options
If you have a low credit score but have been borrowing a long time, you will need to explain it. So, if you suspect that your rating isn’t great, you will be better off talking to a bank manager face to face. Don’t rely on using the automatic services you find online, as they will, more than likely, reject you.
There are two options for you. The first is a low-credit mortgage. These could be offered by lenders if your loan application is dismissed by the automatic process. You’ll need some evidence, like having proof of cash reserves for the past six months. You should also have all your rental payments up to date, and not missed any for the previous year. Bear in mind that low-credit mortgages tend to have higher interest repayments because you are more of a risk.
Your second option is a Federal Housing Administration loan. FHA loans are backed by the government, so mortgage lenders tend to be much more lenient. You’ll need to have around ten percent of the house price to lay down as a deposit.
The importance of a deposit
The more cash you can bring to the table, the more likely you are to get a home loan, regardless of your credit. Ideally, you should aim for around 20 percent. While this can be tough to achieve if you are cash-strapped, you could think about asking relatives to back you. Over time, you can repay them, or wait until you move on to give them back their money.
It’s important to understand that a home loan is a question of risk, and the more you can do to prove you aren’t a risk, the better. Low credit scores aren’t necessarily a bad thing – if you have never borrowed before, you won’t have much of a rating, for example. But, if you can get that deposit raised, it will boost your chances of getting your foot firmly on the housing ladder.
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