Mortgage with Defaults
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Mortgages For Defaults
A big belief of ours at The Mortgage Broker (Cambs) is that everyone deserves the opportunity to get onto the property ladder and buy a home. However if you have had credit issues in the past then some people may believe that it’s not possible to get a mortgage which isn’t true.
There are a number of things that need to be considered & factored in by mortgage lenders and once everything is assessed it may be possible that you don’t just get to look at specialist lenders but some high street lenders may be able to help you.
One thing is for sure, you will need an expert mortgage advisor to help you as a mortgage application with adverse credit is one of the mortgage complicated things in the world of mortgages so getting personalised mortgage advice is going to be key.
What is a Default?
A default notice is when your credit provider closes your credit agreement due to missed payments.
Depending on the provider the amount of missed payments can vary but it’s normal to see 6 consecutive missed payments then registering a default notice but some providers may only allow 3 missed payments.
The most common defaults that we see are normally on either Credit Cards, Utilities such as Gas or Electric, Mobile phone contracts or TV/Broadband contracts and having a default on your credit report can make a big difference in your ability to get a mortgage.
It is also very common to see whoever you originally have the credit with may have sold the debt to a debt collection agency so the company chasing you for the money can in some cases be different to who you originally borrowed from and it is very common that the debt collector also registers a default on your credit report, so you can actually have two notices for the same default.
Satisfied or Unsatisfied Defaults
When looking at your credit file you will see your default notice either being “Satisfied” or “Unsatisfied”
A Satisfied Default is where after the default notice has been registered on your credit file you have repaid the outstanding debt to the company and the account is fully closed.
If you have an Unsatisfied Default notice this means that you still owe an outstanding amount of debt to the company and whilst the account is closed in terms of new credit it remains open for the outstanding debt.
A lot of people may think that a satisfied default is viewed more favourably and therefore make it easier to get a mortgage but the fact that you had the default in the first place will actually rule out some mortgage lenders without even them giving a consideration to the fact you’ve paid it off.
It is not all doom and gloom however as there are many specialist lenders that will consider defaults in the right situation whether they are satisfied or unsatisfied.
How Can I Find Out Information On My Defaults?
The best place to look for information on any defaults that you may have will be on your credit file, also known as your credit report as any credit that you’ve had active in the last 6 years will be listed on there and you can see whether you have one or more defaults.
Getting as much information as possible will be key for your mortgage advisor due to lender’s criteria, we will need to know the exact amount the default was registered for, the date it was registered, the date it was satisfied if you’ve paid it off and the current outstanding balance.
Due to this you tend to see your mortgage advisor just ask for you to provide your credit file so we have access to all of the information that a lender would see when they complete a credit check on you.
Keeping a track of your recent credit history is always a good step in making a plan for a mortgage so even if you aren’t ready right now it’s always worth looking and getting prepared.
Where Can I Get My Credit File/Credit Report
There are three major credit reference agencies. Experian, Equifax and Transunion, you can sign up to any of these services and receive a copy of the information that they hold on you.
Personally we recommend using a service called Check My File as this is the only place that you can see all three of the companies above on one easy to read report as opposed to having to download all three separately.
Getting a Mortgage With Defaults
Getting a mortgage when you have a default is definitely more complicated then it would be for someone that doesn’t have a default but it’s certainly not impossible and we have helped many clients in the past achieve this.
Many lenders will accept defaults and it’s just about understanding the situation, why the default occurred and how it will be avoided in the future. The more recent you had any default notices the harder it could be to access high street lenders but there are still plenty of other lenders in the marketplace that will consider mortgage applications.
Something to consider however is that some lenders will likely ask for a larger deposit where there has been adverse credit history.
How Many Defaults Can I Have?
Different lenders take a different approach so there is no one size fits all . A mainstream lender for example may not want any but depending on circumstance could consider one small default with the right explanation.
Other lenders may consider any number of defaults as long as they total below a certain value and another lender may say you can have up to 3 defaults with no maximum value.
It’s very much about trying to find the right lenders for your situation which in some cases could mean using a specialist lender.
A common search or question we have is what adverse credit mortgage lenders are there but in reality there is no such thing as an adverse lender just due to how the marketplace is today with regulation and risk it wouldn’t be possible for mortgage lenders to target people who purely have a poor credit history but there are lenders who specialise in things slightly more unusual so things such as a poor credit history but you could end up with the same products/interest rates as someone that is newly self employed or buying an unusual property.
These types of situations are normally not handled by mainstream lenders so require more of a personal touch and human look at things and not computers making decisions.
Are The Mortgage Lenders More Risky To Use?
Not at all.
The regulations for specialist lenders that can consider defaults are exactly the same as they would be for any high street bank.
It’s very common for an experienced broker to know lots of different lenders due to interaction with them every day but you may not have heard of them until looking for a mortgage just as you’ve never needed them before as when else are you going to look for specialist mortgage lenders unless you have a special situation and need a mortgage?
What is the Maximum Size Default Allowable?
There isn’t a maximum size default allowable that will still you applying for a mortgage per se.
It just depends on each individual lender and their eligibility criteria. A standard mortgage lender would likely have a low threshold for value but most lenders with experience with those with bad credit will likely have a much higher value and in some cases lenders don’t have a maximum value.
So no matter the size of the default if the case fits a lenders criteria it shouldn’t stop you getting a mortgage.
Is Maximum Borrowing Different When You Have a Mortgage with a Default?
No the affordability assessment would be the same as someone that has a completely clear credit record.
The only difference you may see that if the debt is unsatisfied and you are still making payments towards it, that payment will need to be counted as a financial commitment.
What Is The Mortgage Process?
The mortgage process as we would recommend it would look something as follows;
This is the industry term for mortgage appointment, it allows us to collect all of the key facts about yourself.
This will include things such as your personal details, if you have any dependants, your three year address history, employment details including annual income, financial commitments, credit history & what you are looking for from a mortgage.
At the fact find stage it’s normally recommended to provide your documents to us, whilst we may not be submitting a mortgage application at this stage we can look at everything that a lender would look at if we were submitting a mortgage.
That way we can ask you any questions so we understand what are on your documents to give you the best change of getting your mortgage approved. The documents we would request are;
Proof of ID
i.e passports or driving licences
Proof of Address
Driving Licences if not used for ID, Bank Statement or Utility Bill posted within last three months or Latest Years Council Tax Bill
Proof of Income
Last Three Payslips & Latest P60 if available
Last Three Months Bank Statements for all accounts used
From all of this information collected from the fact find and your documents we then review all of that information and narrow down the lenders that could consider your mortgage application.
As we are expert mortgage brokers and have good relationships with many lenders we can know very quickly which lenders will be perfect for your situation and give you an idea on what the interest rates and monthly payments would look like for you.
Agreement in Principle
Also known as an AIP, DIP or Decision in Principle.
This is like a pre mortgage approval where all of your details are being entered into the lenders system and they will complete a credit check on you and their very smart internal computer will look at your credit report and all of the information we have entered and it it matches up and they are happy they will provide an Accept decision and a certificate that you will need when you find a house that you wish to buy.
As we will have had your documents and information prior to the AIP we can be confident that if a lender provides an accept decision that when it comes to mortgage application there should be a good chance of you as customers getting accepted as we will have seen everything a lender wants to see
Find a House
Once you have your AIP you then go out and start viewing properties that you want to buy. This is normally the slightly more fun bit as you start getting excited and seeing some homes you could potentially own.
Get Your Offer Accepted
When you find a home you want to buy, you will then submit your offer to the estate agent who in turn will put it to the owner of the property.
There could be some back and forth and it’s likely the agent will want a copy of your agreement in principle and proof of deposit and this is completely normal.
What isn’t normal and something to be on the lookout for is being pressured to use the agents services to get an offer accepted. This is illegal and you should report it to Trading Standards if this happens
Applying for a Mortgage
After your offer has been accepted you will circle back to us, depending on how much time has gone since the AIP we will get the up to date documents that we need from you such as more recent payslips or bank statements and any information on other financial commitments you may have taken out.
We then go on to submit your mortgage application. When it is submitted your mortgage application goes into what is called underwriting which is where someone at the mortgage lender reviews all of the documents that we have submitted, as well as your credit record and a report from a Chartered Surveyor on the condition and valuation of the property.
They may have some questions which they will forward to us and we will review, let you know, get the answers to anything we don’t have and then provide to the lender.
Once everything’s been reviewed and okayed then exciting news…
The lender issues your formal mortgage offer confirming they are willing to lend the amount of money applied for.
Whilst you would have instructed a solicitor when your offer was accepted it’s likely they wouldn’t have done too much work until they knew you could get approved for a mortgage so this is when the legal side really ramps up.
Even though it is not an area of our expertise if you have any questions then we can certainly try to help where possible
Finally when all of the legals are completed, everything is signed off you then get to legal completion.
Congratulations you are now a homeowner!
That is an overview of the application process. Whilst there can be a lot involved especially in more complex situations this is where us as a mortgage broker step in and provide as much assistance as possible to make this process as smooth and as stress free for you as it can be.
We know there are lenders that will accept defaults and we know how to get it done for you with this trusted process.
What Do All Of These Terms Mean?
With any form of complexity in a mortgage you tend to see a lot of terms being thrown around and in some cases they mean exactly the same thing so to hopefully try and clear up some confusion;
Credit File, Credit Report, Credit Rating, Credit Record or credit reports all relate to the same thing. Whilst there are different companies that may provide them they contain the same information when reported too
Bad Credit Mortgage, Adverse credit mortgages, default mortgage are again ways of searching for the same problem. However remember that there is no such thing as bad credit mortgages, there are just lenders who understand your history and can assist with products.
Mortgage Broker & Mortgage Advisor are interchangeable terms and relate to our role of searching the market for the best deal for your situation
The term adverse credit relates to things on your credit report that could impact your ability to get a mortgages, This page is dedicated to defaults but other adverse credit events include mortgage arrears, late payments, missed payments, County Court Judgements (CCJs), Bankruptcies & IVAs . All of these are considered “Bad Credit” and could impact your credit rating also known as your credit score.