Adverse or Bad Credit Mortgages

One of the main requirements a person must have before taking out a mortgage is a good credit history.

Anyone who has defaulted on repayments, been in debt or had a county court judgement (CCJ) against them for non-payment would be considered a serious risk to a mortgage lender. They would find it almost impossible to get a mortgage.

Likewise, someone who has fallen into debt so badly they have either been declared bankrupt or have been forced to take out an individual voluntary arrangement (IVA) to reduce a debt would fail – in most cases – to qualify for a mortgage.

Bad credit or adverse credit mortgages, however, are created specifically for those borrowers with an unhealthy financial background. They are also known as sub-prime mortgages – a term which has become more widely used since 2007 – and non-conforming mortgages.

Bad or adverse credit mortgages come in the same format as “prime” mortgages – borrowers can choose between fixed-rates, trackers or other variations. However, with the sub-prime variety the interest rates are usually higher.

Who are Adverse or Bad Credit Mortgages for?

They are designed for people who want to buy a house, using a mortgage, but have a poor credit rating. This can occur for all the reasons stated above. However, having no bank account, moving home frequently or being self-employed are also common causes of damaged credit histories – so anyone who falls into these categories could be a prime candidate for adverse or bad credit loans.

Pitfalls of Adverse or Bad Credit Mortgages

Interest rates are usually much higher for sub-prime mortgages. Many lenders also require a higher deposit to be paid. Someone who has had difficulties with money in the past might find above-the-odds mortgage repayments a huge burden.

People taking out adverse credit mortgages are, in the eyes of the lender, more likely to default on payments in the future. Therefore these mortgages are more risky and, for this reason, they are harder to find.

Applying for and then being turned down for a loan of any kind, including a mortgage, can also contribute towards blighting your credit history. So it is important to step carefully when applying and it is advisable to seek expert advice before proceeding.

Some lenders of bad credit mortgages try to tie the borrower into their deal for long periods of time. It’s worth remembering that after three years or more of regular, punctual repayments a bad credit history could improve to the stage where the borrower is eligible for a prime mortgage.

Where to buy Adverse or Bad Credit Mortgages

People can pick up a bad credit rating a number of ways – not just defaulting on payments. For this reason it is worth going to a mainstream lender first to find out whether you are eligible for a prime mortgage.

If this route is unsuccessful, there are a number of specialist lenders who deal in these kinds of mortgages. It is well worth contacting a whole-of-market mortgage broker who will search for the best deal to suit your circumstances. Some of these firms provide their mortgage advice for free.

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