Are you looking to invest in a rental property but have bad credit? You might be wondering if it’s possible to get a buy to let mortgage with bad credit. While having bad credit can make it more challenging to obtain a mortgage loan, it’s not impossible. Your credit score plays a crucial role in determining your eligibility for a mortgage, but there are steps you can take to improve your chances of approval.
In this article, you will explore how bad credit impacts your mortgage loan and provide tips on how to get a buy to let mortgage with bad credit.
Higher Interest Rates
Lenders’ credit score is the major factor when determining your interest rate. The lower your score, the higher your interest rate will be. This means that if you have bad credit, you will likely end up paying a higher interest rate on your mortgage loan.
Difficulties in Getting Approved
If you have poor credit, you may have a more challenging time getting approved for a mortgage loan. Lenders are hesitant to lend money to individuals with bad credit because they are seen as a higher risk. If you do get approved, you may have to provide a larger down payment or have a co-signer on your loan.
Limited Loan Options
Sometimes your bad credit affects your options for a mortgage loan. For example, some lenders may only offer certain types of loans to individuals with bad credit, such as FHA loans. These loans have more relaxed credit requirements but may have higher interest rates and require mortgage insurance.
Bad credit may require additional fees when taking out a mortgage loan. Lenders may charge higher application fees, appraisal fees, or other closing costs. These fees can add up quickly, making it even more difficult to afford a mortgage loan.
Refinancing can help you reduce your rate of interest and monthly payment, but it may be difficult to qualify for if your credit score has not improved. This can make it harder to take advantage of lower interest rates in the future.
So, what can you do if you have bad credit and want a mortgage? Here are some quick and great tips to improve your chances of approval:
Improve Your Credit Score
The best thing you should do to improve your chances of being approved for such a loan is to improve your credit score. This can take time, but it is worth the effort. Pay your bills on time, avoid opening new credit accounts and keep your credit card balances low, and
Save for a Larger Down Payment
Saving up for a larger down payment can help you show lenders that you are serious about repaying your loan and can help offset the risk of lending to someone with bad credit.
Consider a Co-Signer
If you have poor credit, you can get a mortgage loan with the help of a co-signer. A co-signer agrees to be responsible for the loan if you cannot make your payments.
Consider a Mortgage Broker
A mortgage broker can help you navigate the complex mortgage market and find a willing lender to work with you. They can also help you find loan options of which you have not been aware of.
Commercial Trust experts say, “If you are in bad shape, a great resource to ask for help is from a specialised broker.”
Having bad credit can significantly impact your ability to obtain a mortgage loan. You have to be patient and consistent in improving your credit and finding the right lender. With dedication and tremendous hard work, you can achieve your goal of owning a home or investment property.