What do bad credit mortgage lenders examine when they assess you?

Mortgage with bankruptcy

What are the factors used to determine your eligibility for a bad credit mortgage?

Whereas mainstream mortgage lenders are most concerned with your credit score when assessing the risk of lending to you, specialist lenders do things a little differently. Very often, they pay no attention to credit scores. Instead, they want to understand your financial background.

In this article, you’ll learn what it is that bad credit mortgage lenders assess when considering your mortgage application.

Why you might need a bad credit mortgage lender

There are many factors that could harm your credit score and stop mainstream lenders from accepting your mortgage application. These include:

No credit history

  • Low credit score
  • Late or missed credit payments
  • CCJs
  • IVAs
  • In debt management plans
  • Bankruptcy
  • Payday loans

Any of these may be a big red flag for most mortgage lenders. However, whatever the circumstances that led to your bad credit score, there is likely to be a specialist bad credit lender who will assess your application favourably. Each considers the following factors slightly differently.

Your income and expenditure

The income rules are the same whether applying for an ordinary mortgage or a bad credit mortgage. You must show that you can afford the mortgage payments. Usually, mortgage amount is capped at 4 or 4.5 times earnings. However, this depends on the lender and other factors considered in the assessment of your application.

The lender will also consider other regular monthly outgoings that you have, and this may affect the multiple of earnings they are willing to lend you.

Your bank statement conduct

Your bank statements will give the lenders a good insight into how you manage your spending and a good idea if you will be able to keep up payments on a mortgage now and if interest rate increase in the future. A little work on getting your bank statement mortgage ready will pay huge dividends, see our article on How to get your bank statements mortgage ready.

Your employment type & history

Lenders will want to be confident that you have a stable and regular income. A sudden drop in your earnings could affect your ability to pay the mortgage. Being in a probation, having a zero hour or a non permanent contract could affect your chances of getting a mortgage

Your financial history

Lenders will examine the type of financial issues that led to your bad credit score. They’ll look at when events happened, what caused them, and more importantly what steps you have taken since to correct the situation.

Loan-to-value (LTV)

Bad credit mortgage lenders usually require a higher deposit, which acts as a cushion in case you default and they need to repossess. Typically, you should expect to pay a deposit of at least 15%. The higher the deposit you are able to pay, the more likely you are to get a mortgage, and the lower the interest rate is likely to be.

Property details

The type of property you wish to purchase may also affect your mortgage application. Some lenders have different rules about lending for ‘non-standard’ properties (e.g. thatched cottages, homes with an annexe, etc.).

Your personal details

There are many personal factors that affect mortgage applications, including the following:

  • Your age
  • Marital status
  • Employment status (for example, employed or self-employed)
  • Children or other dependants
  • Number of applicants

Different lenders for different bad credit reasons

Specialist lenders in the bad credit mortgage market have different criteria that they examine. They also specialise in different types of bad credit issues. For this reason, you should ensure that you use a mortgage broker with:

  • Whole of market access, with links to all bad credit mortgage lenders
  • Broad experience in the bad credit mortgage market
  • Up-to-date knowledge of the mortgage products available for your circumstances

If you have a bad credit score or a zero credit core, contact Mortgage Thoughts today. You may be surprised at the mortgage choice that may be available to you.

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