The world of mortgages and credit ratings can seem complex to those finding themselves amid mortgage mayhem. Interest rates, deposits, types of mortgages, credit rating, and even the terminology are enough to send you spiralling if you are finding the process overwhelming.
Like most of us, you might want to speak to a friend about how to navigate your way through a mortgage application, but no matter whom you speak to, there will always be myths and untruths floating around to make matters even more complicated.
So, to put your mind at ease, we have a handful of mortgage myths below and we intend to bust them to boost your confidence in your mortgage journey. Let’s debunk some of these together.
Myth – Credit rating; once bad, always bad.
Truth – There are many ways you can improve your credit rating and by taking the right steps, it most definitely can be fixed. Starting to pay your bills on time, closing unused credit cards, lowering your credit utilisation ratio, and even getting on the electoral register are all positive steps to improving your credit rating. One of the best ways to keep on top of your credit score is by keeping a check on your credit file by using a credit scoring agent, such as Experian.
Myth – A bad credit mortgage = high-interest rates for life.
Truth – By improving your credit history, you can lower the interest rate you pay on your next mortgage. By taking the steps above to improve your credit rating, it will reduce the amount of risk you pose to lenders, therefore enabling them to offer you better mortgage deals with lower interest rates. You may feel that your credit score has improved, and you want to remortgage before the end of your mortgage term. Whilst this is possible, some lenders may impose early repayment charges, so it is advisable to add up the cost of savings on interest and the cost to repay early.
Myth – My credit rating is poor so mortgage lenders won't accept me.
Truth – Every mortgage lender is different, and they will each have varying factors they take into account when considering a mortgage. Some lenders may pay more attention to DTI (debt-to-income ratio) meaning that the amount of debt is compared to your monthly income. High debt and low income will pose a high risk, whereas high debt but also a high income would mean that your DTI is lower, which could help to overcome your bad credit score. There are also specialist lenders that provide mortgages specifically for people with bad credit.
Myth – We can’t get a mortgage because of my partner's bad credit rating.
Truth – As mentioned above, there are lenders that will specialise in offering mortgages to those specifically with a bad credit rating, so even if your situation is complex, there could still be help available to you when applying for a joint mortgage with one of the parties having a bad credit rating. Another option is to apply for an individual mortgage application. If you have no financial association with your partner, like a joint loan or credit card, then their bad credit should have no impact on an individual mortgage application.
Myth – I will have a better chance of being accepted the more mortgages I apply for.
Truth – Whenever you make a mortgage application, it leaves an imprint on your credit report, which is visible to any lender you approach. This might not seem like much, but it could be detrimental to your mortgage application, as if you are making several applications in a short period of time, you could appear that you are desperate for credit and less likely to make repayments on time. It is advisable to research your lenders before going ahead with an application and spread them out over several months. You can also gain a Decision in Principle from a lender that will not impact your credit rating, but it is no guarantee of a mortgage offer at a later date.
Use a trusted mortgage broker to research your options and apply for you.
It’s a much safer option to go with a mortgage advisor who can research on your behalf and find the right lender based on your specific needs. At TaylorMade we offer friendly, professional advice for all kinds of mortgage situations and if you are struggling with bad credit and think that a bad credit mortgage is the only option for you, then come and chat with us to see what possibilities could be available to you.
