How can I get a mortgage with a low credit score?
Published Sun, Nov 25, 2012 Updated Tue, Feb 16, 2021
That depends a lot on just how low your credit score is. There was a time when people with poor credit could get a mortgage without too much trouble and at the time banks were lending money pretty freely. Unfortunately as you already know, the bubble burst and the banks have long since tightened up.[cta type=”mortgage”]
As a result, if your credit is very poor then you probably won’t be able to get a mortgage. But if you are border line / have a poor to fair credit rating there are a few things you might be able to do to help your case a little:
Get a guarantor
There are some banks out there who will allow you to offer a guarantor for your debt – in other words, a friend or family member with lots of money and good credit will vouch for you. If you are able to use this option and are lucky enough to have a friend who trusts you that much then you might find your poor credit score can be ignored.
Stump up more money
Banks are all about lowering their downside. If you fail to pay your mortgage they will not get their money back – of course eventually they would take back your house and sell it to pay off the debt. But the bank doesn’t want to be stuck with your house, so they may have to sell it at below value for a fast sale. The risk for them is that they might end up selling it for less than the value of your debt.[cta]
That’s why your deposit matters so much – because if you borrow 90% of the value of your home they only have a 10% margin to cover their ‘what-ifs’. If you can put up a 20% deposit it will substantially lower their risk.
Finally, the bank cares above all else that you can afford to repay the debt. If you don’t have a job and don’t earn enough to pay back those monthly repayments then it doesn’t matter how good your credit is. So if you don’t currently earn enough to easily afford your mortgage you need to either look at cheaper homes or wait until you are earning more. Of course, your credit might improve in the meantime too.