Becoming a homeowner is a major milestone for any budding family, a goal that many people work very hard towards for years. However, it can be difficult to reach the level of financial comfort necessary to be able to purchase a home, and more often than we care to admit, most of us will make a few financial stumbles here or there, thus damaging our credit histories which in turn impacts our capacity to take on loans from banks. In fact, the statistics seem to indicate that thousands of Brits have inadvertently defaulted on their credit payments at some time, or missed the deadline for a loan payment, and thus defaulted on their credit report.
Defaults are the main reason why lenders may look to refuse a loan since they don’t want to take on the potential risk. And the lenders on high street generally keep their eyes on applicants with a pristine credit history to approve their mortgages. That being said, there is a way out of this unique sort of financial purgatory, and it is possible to get a mortgage even if you have a default in your history. The following article should help illuminate a few ideas for you.
Find a Mortgage Advisor
First things first, you will need to speak with someone who can help you find your way beyond this particular ordeal, and outline a few possible avenues you may not have previously considered yourself. A mortgage advisor can help by reviewing your financial history and make a few informed recommendations based upon the lenders they know will want to work with you.
However, you cannot be given an honest assessment without being completely upfront about your finances and circumstances – you might be doing yourself a big disservice otherwise. Since your conversation with the advisor would be confidential, then there’s no reason for you to be secretive or not provide the full scoop. Any delay can cost you time and you may end up losing the house of your dreams to another, more qualified buyer, or actually lose at a better rate for the mortgage simply because you were not transparent. In all cases, meeting with a mortgage advisor and having a clear, open dialogue with them is the first step in solidifying your financial standing.
Assess Your Defaults
If you have more than one default to your name, then that might mean you have an uphill battle when it comes to presenting your case to a potential lender. However, not all defaults are equal, and some are worse than others. This useful page can help clear up a few misconceptions. Essentially, lenders will have no trouble considering a secured loan or fixed mortgage payment if they feel that what is represented in your history is far too serious to ignore. Meanwhile, other lenders can be fairly relaxed when it comes to late payment for your cell phone bill, and will not view the default as entirely detrimental.
However, a default on a credit card payment or student loan repayment tends to lie somewhere in the middle, and while you will find a lender, you may not be able to net a loan with the best rate for you. So, your credit history and the kinds of defaults on your record – not just the quantity – will always play a major role in your ability to secure a mortgage with a good rate.
The Timing of Defaults and Your Application
Another factor that comes into play is when exactly a default has occurred, and when you have sent in your application. In some ways, a lot of this is a simple matter of timing. For example, a default will stay on your credit file for roughly six years, which will hinder your ability to access bigger credit lines during that time. However, keep in mind that this is only true of some mortgage credit lines, not all. And, the longer a default is marked on your record, the less likely it will get in the way of your ability to obtain a competitive mortgage. If you are able to repair your credit rating sooner, before that six-year window of time passes, then you will net a competitive mortgage even faster. Remember that there is always a way out, and if you work hard to control your finances first before applying for a loan, you may soon find that your situation will be on the correct course soon enough.
How Much to Borrow
If it’s important to get a mortgage, and you are still working hard to correct your credit history, that’s ok: lots of people are in the same boat, and your situation is shared amongst many others who also find themselves balancing a great number of spinning plates all the time. If this sounds like you, then you might also be wondering how big of a loan you may be able to receive. Truthfully, most lenders will be credit averse and would typically offer tighter controls. If you have defaults, the amount you can borrow may be limited, and you will have to pay a higher deposit. So, you will still receive a mortgage, but you may have to sacrifice the amount you end up paying upfront. Things will work out, and some flexibility from your side, as well as the hard work required to repair your credit history, will help in the long run.
Perhaps you have a fixed gross annual salary, or you are someone who works on a contractual basis and thus tips and other factors come into play when it comes to your income. In all cases, the lender will simply evaluate one hundred percent of your baseline salary, and will not go beyond that. Reporting your income accurately is important in being able to secure a loan that fits within your financial scheme, one which you can pay off easily in due time, while the lender will feel confident that they are not taking on more risk than necessary.
It may feel as though these precarious times run against any solid financial decision you would like to make. It’s tiring, and you may have trouble saving enough, or might miss a few bills here or there. The important thing to remember is that this happens to us all, and there is no problem that cannot be fixed without enough foresight and hard work.