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Get a Mortgage with Bad Credit

By: Emma Eilbeck BA (hons) - Updated: 26 Sep 2010 | comments*Discuss
Bad Credit Sub-prime Non-conforming

If you have had problems keeping your finances in check in the past, don’t worry, this doesn’t necessarily mean that you won’t be able to get a mortgage.In some cases you can still get a mortgage even if you have been declared bankrupt or have fallen behind with payments on other loans.Lenders normally refer to someone with bad credit as a sub-prime client, or a non-conforming customer.

Sub-prime lenders are normally very specialist and will normally only operate through mortgage brokers, so it is worth going to see a broker if you have a bad credit history.All the same rules apply when you are taking out a sub-prime mortgage, you can choose how long and which type of mortgage you want, for example a fixed or a tracker rate. Lenders will normally not allow you to borrow as much as a prime borrower as you pose more of a risk. The idea behind a sub-prime mortgage is that you start off on this type of deal and then a few years down the line you try and switch to a prime mortgage where the rates will be a lot lower.

What’s Wrong with Sub-Prime?

The mortgage market is currently going through a period of change and coming to the end of a time when it was very easy to get a mortgage if you had bad credit.The sub-prime mortgage sector is not without its critics and many are blaming sub-prime lenders for the problems that exist in today’s economy. Across the pond in the United States lenders have got into a lot of trouble and repossessions have soared because they have been offering sub-prime mortgages to people who could not afford to pay them back. This has meant that a lot of homes have been repossessed, which many fear will also start to happen in the UK.

Specialist sub-prime lenders are slowly starting to become extinct as their funding dries up.On the one hand, this is a good thing, as the last thing you want is to be sold a mortgage that you cannot afford to pay back, so ultimately the changes in the market will protect you and make sure you are not at risk of your home being repossessed.

Benefits and Drawbacks

The biggest benefit of a sub-prime mortgage is that it allows you to get a mortgage despite any mistakes you may have made in the past with your finances. It gives you a second chance if you have been made bankrupt and allows you to start again. On the downside though, you will have to pay for the privilege. A lender will view you as a risky customer because you have a history of defaulting, so they will want to make sure that if you do it again then they won’t loose any money. This means that you will end up paying a substantially higher rate compared to someone on a prime mortgage.Also, whichever lender you choose may mean the difference between whether you are classed as sub-prime. For example, you may only have one County Court Judgement against your name, but the lender will see you as a sub-prime candidate, while another lender may not.

Sub-prime mortgages have opened up the mortgage market to millions, but with this also comes a risk. If you have had problems paying back credit in the past then you should maybe ask yourself whether you are now ready for a mortgage, if the answer is yes, then great, but make sure you are ready, as it is a big step.

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