95% mortgages with bad credit
When you have bad credit, you may think that you won’t be able to secure a mortgage. While getting accepted may be more difficult, it certainly isn’t impossible.
Even if you have an individual voluntary arrangement (IVA), any defaults, or bankruptcy, getting a mortgage with a bad credit history can be done.
And, help is at hand. Our guide to 95% mortgages offers advice and valuable tips on getting a mortgage, even with a poor credit history.
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What is a 95% mortgage?
Simply put, a 95% mortgage is a loan that makes up 95% of the price of the property you wish to purchase, where you, the buyer, put down a deposit of 5% to cover the rest of the house price.
For example, if you wanted to purchase a house on the market for £150,000, with a 95% mortgage, you would be required to put down a deposit of £7,500, while your loan would total £142,500.
Often you will see 95% mortgages being referred to as a ‘95% LTV’, which stands for ‘loan-to-value.’ This simply refers to the percentage amount covered by the loan, aka mortgage.
Is it possible to get a 95% mortgage with bad credit?
While having a somewhat murky credit file may mean it is more challenging to secure a mortgage, it is by no means impossible.
Some mortgage brokers cannot provide a loan if you have bad credit and a small deposit of only 5%, as it is deemed too risky for the provider. Bad credit mortgages will usually insist on a higher deposit which helps to offset the risk to a degree, so choices are often limited when you have both a low deposit and bad credit working against you.
That doesn’t mean it can’t be done, however. While a high street lender may automatically turn a potential buyer down due to these two factors, specialist lenders like Loan Corp have much more flexibility to look deeper into your application and take other factors into account before making a final decision on whether to grant a mortgage.
Will lenders overlook some forms of bad credit?
In certain instances, it may be possible for certain forms of bad credit to be overlooked. This is because there is a difference between bad credit and more severe credit issues. It may still be possible to secure a mortgage even if you have one or more of the following credit file issues:
- Low credit score
- No credit history
- Arrears
- Late payments
- Overdraft charges that were not authorised
In most cases, specialist lenders will not consider any of the above to be severe enough to turn down a mortgage application. Many are also able to take into account both the age and severity of any bad credit into full account before making a decision.
A 95% mortgage with severe bad credit
Securing a 95% mortgage with severe bad credit is more difficult, and because of the risk involved to the lender, they will usually ask for a larger deposit, with many requiring at least a 30% deposit in order to be approved.
The following list includes some credit issues which can be considered severe by many high-street lenders:
- Missed payments on a mortgage
- Default payment
- CCJs
- IVAs
- Having a debt management plan/scheme in place
- Bankruptcy
- Repossession
Again, the aforementioned factors are by no means a guarantee that you won’t get accepted. You still may be eligible for a mortgage with as little as a 5% deposit, depending on your circumstances.
The benefits of 95% mortgages
When it comes to applying for a mortgage, what might be the perfect option for some, may not always work for others. That’s why it’s important to weigh up the benefits and any potential downsides when considering the types of mortgages that are open to you.
Here are one or two things you should consider before applying for a 5% deposit mortgage:
Benefits
- The most obvious benefit to bad credit mortgages, such as a 95% mortgage, is it could potentially make buying a home much easier. Saving for a sizable deposit is one of the biggest pitfalls for many potential homeowners, particularly first-time buyers. But, with a 95% mortgage, it could make the process much more manageable.
- With a 95% mortgage, it makes jumping onto the property ladder much quicker. With fewer savings required, there’s less time to wait, so your dream home could be closer than you think.
Potential downsides
- With a mortgage that’s tailored towards those with adverse credit, such as the 95% mortgage, they can be more expensive. This is because interest rates will generally be higher, meaning that the amount you repay is more expensive in the long run.
95% mortgage: Tips on how to increase your chances
While it can be difficult to secure a 95% mortgage, there are a few things you can do to potentially increase your chances of getting accepted. Below we’ve outlined some top tips to boost your chances of approval and minimise the risk that a bad credit score may pose:
Check your credit report
A great way to start is by downloading your credit report to ensure that not only is it fully up-to-date but also that it’s entirely accurate. If you notice any anomalies, you should contact the organisation prior to applying for a mortgage so that these errors can be corrected before you speak to a lender.
Secure debts
If you are in a position to pay off any debts, it’s important to do so before approaching any mortgage lenders, as doing so can strengthen your profile. If you have multiple debts, you may wish to get professional advice on whether it’s worthwhile consolidating them.
Join the electoral register
Believe it or not, enrolling on the electoral register can boost your creditworthiness, so if you haven’t already, sign up online.
Find a broker for adverse credit
With a bad credit score and just a 5% deposit, you need the right mortgage broker on your side who will be able to improve your chances of being accepted for a 95% mortgage.
Wait
You don’t have to apply for a bad credit mortgage; if your credit rating isn’t as good as it could be, waiting may be an option for you. This is because, as time passes, blemishes on your record are often seen as less severe, particularly if you find that your finances have improved.
Your partner’s credit history
If you decide to buy a home jointly, your partner’s credit history will also be taken into account, being that you could look at other mortgage options and not just a bad credit mortgage.
Show you are low-risk
If you decide to save for a larger deposit and have a stable income, you could be subject to cheaper mortgages.
Be honest
The saying still stands: Honesty really is the best policy. As any lender will conduct thorough searches into your circumstances and financial history, any attempts to hide bad credit will not look good.
Have an explanation
A lender may choose to ask you about any previous financial trouble, so be sure to have an answer as well as an explanation of how you have remedied it.
Keep up to date
Late or missed payments can make it difficult to get a mortgage. Once you have decided that you want to apply for a mortgage, ensure your credit score starts improving by setting up direct debits for your monthly outgoings, so you never miss a payment.
Worried about your mortgage chances with bad credit and a 5% deposit?
At Loan Corp, we believe anyone should be able to be considered for a mortgage, even if they have bad credit history and a small deposit. That is why we have teamed up with over 200 providers to find suitable and affordable mortgages for everyone – regardless of their circumstances.
Why choose Loan Corp?
We are specialists in bad credit
We have a team of highly trained and experienced experts who understand bad credit situations and, therefore, know exactly what solutions there are available.
We deal with 200 lenders
We work with a wide variety of top-grade lenders to ensure you will only get the very best mortgage and terms for you. This means that we have options for everyone, potentially even those with bad or severe credit.
Not every case is the same
We recognise that you are not a number and your situation is completely unique. That’s why we’ll take the time to understand your circumstances and get to know you and precisely what you need.
Unparalleled support – whenever you need it
Getting a mortgage is stressful, and when you have a bad credit score, it can be even more so. We do our utmost to ensure the process of applying for a mortgage is as hassle-free as possible while we’re with you giving mortgage advice every single step of the way.
All you need to do is contact us, and one of our expert brokers will aim to get back to you within 2 hours on weekdays. We’ll ask you a few simple questions, and we’ll do the rest.
FAQs
Will a rejected mortgage application show on my credit file?
A rejection footprint is filed on your credit report when you apply for credit products and mortgages too many times in a short period of time. Lenders sometimes view this as ‘desperate behaviour’ and choose to reject applications on these grounds.
Will I have to pay more interest on a mortgage with bad credit?
Applying for a 95% mortgage will usually mean that you have to pay more interest than you would on some other types of mortgage.
How do I know if I can afford a bad credit mortgage?
While your mortgage broker will go through your application with you to ensure you can make the monthly repayments in full and on time, you may wish to use a mortgage repayment calculator to see for yourself how much your repayments could be.
What happens if my circumstances change and I find myself unable to keep up with monthly repayments?
If you find that your circumstances change and you are struggling with repayments, it’s important to speak to your mortgage broker as soon as possible to make them aware of the situation. However, if you continue to default on payments, it is possible that your property be put at risk.
Contact us now for expert bad credit 95% LTV mortgage advice