Adverse Credit Mortgage Facts
10 Things you should know
There are number of places you can find information about bad credit mortgages and tips on how to help you apply for a mortgage with bad credit.
This is meant as a no nonsense, quick reference guide and includes what we
consider to be the most useful questions and answers relating to bad credit mortgage applications. If your have a question you want answering and can not see it in the ones below, please view the other pages on the site or contact us using the form to the right.
in no particular order...
1. Can an adverse credit mortgage application guarantee I can get a mortgage?
A bad credit mortgage will allow people to apply for mortgages and remortgages with adverse or bad credit being listed on their credit file. Like normal mortgage's they still have set criteria to meet and different adverse credit mortgage products will allow different bad credit to be allowed. They can not guarantee a mortgage for everyone with impaired credit but they do make getting a mortgage with impaired credit much more accessible.
2. Do all adverse mortgage applications have lenders fees?
A typical mortgage, adverse credit or not will usually have a lenders arrangement fee. Mortgages that allow bad credit may have larger lender arrangement fees than a standard mortgage but that's not always the case. Standard lenders arrangements fees have increased in recent years and nowadays there is little difference between the lender arrangement fees charged between a normal and sub prime lender.
3. Do sub prime lenders have higher interest rates?
A sub prime mortgage lender will typically have a higher interest rate than a standard high street bank or building society lender. The reason for this is simply to reflect the greater risk for the sub prime lender when lending to impaired credit clients. There is also a difference is how the rate is calculated, a sub prime mortgage lenders will typically use the LIBOR rate (London Inter-Bank Offered Rate) as a base for interest rates which is different to the Bank of England base rate that most high street lenders use.
4. Will an adverse credit mortgage application take long to complete?
Not necessarily. Any lender will give a list of documentation and information they require in order issue a mortgage offer, such as ID, proof of residence, wage slips etc - the information a sub prime mortgage lender asks for may be more in depth than a normal lender but if they receive the information in a timely manner there's no reason why an offer can not be issued just as quickly as a normal high street mortgage.
5. Will an adverse mortgage application damage my credit?
When people apply for a mortgage, whether it be from a high street lender or a specialist sub prime or adverse credit lender they will do a credit search. Your credit file will show that a mortgage lender applied for the search for a mortgage application - the credit file will not show which company requested the search.
With that in mind applying for a mortgage with an adverse lender will be no more harmful to your credit file than applying anywhere else. Obviously applying to numerous places can have an effect on a lenders credit scoring procedures but for people with adverse credit its likely this will have little or no effect on any mortgages they will qualify for as the adverse credit listed on their credit file will effect the application more than any searches registered by lenders regarding applications.
6. Do all sub prime lenders charge for a MIG?
The simple answer is no. A MIG (or Mortgage Indemnity Guarantee) is an insurance paid by the borrower to protect the lender should they have to repossess a property. The insurance will cover the lender for any shortfall on repaying the mortgage if the property is sold (for instance, at auction) for less than the monies secured against it. A MIG may be charged by any mortgage lender (adverse or not) and just because you require a mortgage with bad credit does not automatically mean a MIG will be charged - some lenders charge a MIG and some do not.
7. Will it cost more to leave a sub prime mortgage lender?
Any mortgage with a special deal period (such as a fixed or discounted interest rate period) will have penalties in place for borrowers who want to redeem the mortgage whilst in the special deal period. This is because the lender has reduced the monies they will make on interest payment and to make sure the product they are selling is commercially viable they 'tie' people in until the special deal period has ended.
Once the deal period has ended it should cost no more to leave a specialist lender than it does any other lender, like most lenders they will typically require one months notice or one months interest payment as well as a deeds release fee (in order to transfer the deeds to the new lender) which is typically around the £100 mark.
8. I have an adverse mortgage, can I get a secured loan?
When people apply for a secured loan the secured loan lender will need permission from your existing (1st) mortgage company to place a secured loan behind theirs (hence the term 1st and 2nd mortgage). It makes no difference whether the lender is a sub prime lender or not the secured loan lender will still need to ask the 1st mortgage lender for permission, all lenders will look at your existing mortgage payment history and if the mortgage has been paid on time with no arrears then its likely they will agree, if there are mortgage arrears then the lender will need to look at the situation and the reasoning for the secured loan much closer before they will allow another loan to be secured against the property.
9. Can I use a 'normal' lender after being with an adverse credit lender?
As long as you meet the high street lenders mortgage criteria there's no reason why you can not - the fact that you are already with a sub prime mortgage lender will have no effect on the new lenders decision - as long as you can meet their criteria everything should be fine. Many people with bad credit plan to use a sub prime mortgage lender then go with a high street lender after, this is most used when people are going through a credit repair exercise - they remortgage with an sub prime mortgage lender and clear all their bad debt and a couple of years later when they can change mortgage companies without incurring penalties they move back to a high street lender on a better rate.
10. Do I need a mortgage broker for an adverse credit mortgage application?
Normally yes, you will normally always need to use a mortgage broker to get a bad credit mortgage. This is due to the fact that, in order for the lender to keep costs down for the borrower they do not employ the sales staff to deal with public enquiries. This also means the emphasis is on the mortgage broker to ensure the mortgage is suited to your needs. Specialist bad credit mortgage brokers tend to get the best results for bad credit mortgage applications as they will be more familiar with the lending criteria and more familiar with what deals are going on at the time you want to apply. A specialist broker should also be able to move things along more smoothly as they will have more experience in dealing with sub prime lenders and their underwriting criteria.
