Mortgages For Bad Credit First-Time Buyers (2024)

Purchasing your first home is one of the most important events in life.

But it can also be an incredibly challenging one since, in most cases, a mortgage is required to fund the purchase. While most lenders offer loans for such purposes, they will assess your credit report when they do so.

As such, those with bad credit may find it hard to get a mortgage to buy a home. That said, it is not impossible for first-time buyers to get a mortgage with bad credit, and this guide will help you know how.

What Is Bad Credit?

While there is no standard rule that dictates what bad credit is, usually, having a low credit score can mean having bad credit.

This can happen due to various reasons, such as missing payments on credit cards, failing to repay loans, and applying for credit frequently.

Your credit history is recorded by the three arguably major credit reference agencies in the UK, which are TransUnion, Experian, and Equifax.

Banks, utility companies, and lenders all provide information to these agencies, which is used to determine your credit score and the information is recorded on the credit report in which the lender then has access to when you are applying for a mortgage.

For those planning to buy a home for the first time, having bad credit is not very uncommon. One of the primary reasons for this is that, in many cases, such buyers may not have enough credit transactions that can help determine a high enough score.

But there may be other factors as well, such as missing out on loan repayments or defaults on accounts.

Is It Possible For First-Time Buyers With Bad Credit To Get A Mortgage?

Getting any type of loan while having bad credit can be pretty challenging, especially if you intend to borrow from a what would be called mainstream or high street lender. However, there are specialist lenders who may provide a mortgage in such situations who will cater to first-time buyers.

These lenders evaluate a loan application based on how bad the credit history of the applicant is along with their income and equity or deposit. Thus, being a first-time buyer alone does not affect the lender’s decision solely.

Instead, they would like to know about the bad credit issues, such as their time and nature of occurrence, amounts involved, and steps taken to resolve those issues.

Mortgages For First-Time Buyers With Low Credit Scores/Adverse Credit

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Several factors may be responsible for a low credit score, such as having a bad (adverse) or no credit history. Generally, the reason for bad credit history is among the most important factors lenders consider when evaluating a mortgage application.

Different lenders will utilise alternative methods of evaluating an application when it comes to credit checks of the applicants.

Some may stick to a conventional credit score-based evaluation while others may adopt a more sympathetic approach arguably by manually searching actually what is on the applicant’s credit file.

Because of this, it is possible to find lenders willing to provide a mortgage to first-time buyers with a low credit score.

Getting A Mortgage As A First Time Buyer With Bad Credit

Whether you are a first-time buyer or not, bad credit can make getting mortgages from standard lenders difficult.

This is irrespective of whether your bad credit history is caused by credit issues or having no credit history. In such circ*mstances, specialist bad credit mortgage lenders can be quite helpful.

Such lenders specialise in providing mortgages to people with bad credit, including first-time and experienced buyers. They are much more flexible than standard lenders when it comes to assessing borrowers and put a greater emphasis on your current credit situation than on past history.

To determine whether to accept a mortgage application, they assess your current income, expenditure, savings, various financial commitments, and details of any bad credit.

When inspecting bad credit issues, they rely on different types of information, such as the amount of money involved and the measures taken to improve your position after the period of bad credit.

As a first-time buyer, discussing various aspects when applying for a bad credit mortgage with a specialist broker is important. Such aspects include the current financial situation, plans, objectives, and goals.

With this information, a broker can help you find the most suitable bad credit mortgage provider who offers the best rates and terms for you.

Increasing Your Chances Of Getting Your Mortgage Application Approved

The first step to getting a mortgage as a first-time buyer with bad credit is finding the right specialist or bad credit lender. This can be done with the help of a reliable broker.

You will then have to get your mortgage application approved by the lender in which your broker will support you with.

It is crucial to pay attention to the amount you put down as the deposit for the mortgage. Whenever a loan is provided, there is always the chance that it may not be repaid due to various reasons.

This risk is reduced by the deposit, which you need to put down when applying for the mortgage. The part of the value of the house that the mortgage covers is known as the loan-to-value ratio, and it is lowered by a higher deposit.

When the deposit is larger, the lender can rest assured that the loan amount can be recovered more comfortably in the event of repossession as there is a higher level of equity in the property.

Avoiding Mistakes That Can Worsen The Situation

It is very easy to become overwhelmed by the situation if you are a first-time buyer with bad credit searching for a suitable lender. However, it is crucial to avoid mistakes that can make the situation even more difficult when buying a house.

So, make sure to stick to already existing financial commitments and make timely payments without any defaults. More importantly, do not apply for additional loans, especially payday or short-term loans. Similarly, avoid overdrawing from bank accounts without authorisation.

FAQs

1. How long is bad credit visible on your credit report?

Whether you are a first-time buyer or an experienced one, bad credit information generally appears on your credit report for a period of six years.

2. How is a home buyer classified as a first-time buyer when purchasing property?

To be classified as a first-time buyer, you should not have a majority interest in a dwelling or similar property anywhere within or outside the UK and you are then looking to do so for the first time.

3. What is the most common income multiple for a first-time buyer, when calculating the maximum mortgage available?

Most lenders limit the mortgage offered to 4 to 4.5 times your income, making it the most common available sum.

However income multiples can vary drastically between lenders.

4. How important is affordability for a first-time buyer with bad credit?

Lenders put considerable emphasis on affordability, which means simply the applicant’s level of income taking into account their expenses, including the onward mortgage payment. Better affordability increases the chances of getting a mortgage.

5. How can a first-time buyer with bad credit improve his credit score?

There are several ways by which a first-time buyer with bad credit can improve their credit score. These include registering on the electoral roll, rectifying mistakes on the credit report, paying utility bills on time, etc.

Final Thoughts

Having bad credit can itself be a major obstacle if you need a mortgage, but the situation becomes so much more complicated if you are a first-time buyer arguably due to inexperience.

Aside from negotiating with the property seller and fulfilling various obligations, arranging for funds for the purchase can be quite stressful for the first time.

Fortunately, specialist bad credit lenders can help you out in such situations by providing lending criteria that you meet.

But locating such lenders might be a bit problematic, especially for those with no prior experience, which is why it is best to consult a specialist broker for the purpose.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.