How much can you borrow for a mortgage with adverse credit
We come across many potential borrowers who are unsure how much they can borrow for an adverse mortgage - Even when people are re mortgaging we find they are still unsure if a new lender will allow them to borrow enough due to their credit history - we will hope to explain how a lender may view your credit and how a poor credit history may impact on how much you can borrow for an adverse mortgage.
In order to explain in detail how much you may be able to borrow you may want to view how income and affordability page which will explain the different ways in which a lender will work out if you can afford a mortgage - it will not explain how much you can borrow but give you a better understanding of how lenders work out what monthly payments you can afford, such as using income multiples or your debt to income ratio.
This coupled with the information below should give some indication as to how much you can borrow for an adverse mortgage.
How much will my adverse credit let me borrow?
Your adverse credit will have an effect on how much you can borrow but it may not be the main or deciding factor. There are a few things to consider when trying to figure out how much a lender will borrow you with adverse credit registered on your credit file and we will try to go through the main things below.
There are four main factors to be considered, these are your income and can you afford an adverse mortgage, there is so much to cover on this subject we have allocated a few pages to this subject which should help you with this but the income and affordability page is a good place to start, you should also understand about property equity, adverse credit and finally how they all tie in together.
Equity
The equity stake you will have in the property will also determine how much you can borrow, for a mortgage this will be how much deposit you have to put down and for a remortgage the equity will be what value of the property on a percentage basis is mortgage free - for example if your property is valued at £200,000 and you have a mortgage of £100,000 you have 50% mortgaged and 50% equity - this would be a 50% Loan to value. Again, as this subject needs further explanation we have dedicated other pages to loan to value that should give you a much clearer explanation of how a lender may work this out. The equity percentage a lender will allow will not normally be effected by the properties value but the percentage or loan to value you can borrow will equate to a monetary figure which will be effected by the property value. What we mean by that is 70% of £100,000 is less than 70% of £200,000 but they are both 70%.
Adverse Credit
Again we have dedicated a number of pages to this but to be complete we will look at it again here. generally speaking the 'worse' your credit the more equity you will need to have as this reduces the risk to the lender. From an adverse mortgage lenders point of view, the more adverse credit registered on your credit file the higher the risk of lending - this is because there would have been missed payments, probably caused by something out of your control which effected your income to the point where you could no longer afford your monthly payments. A lender needs to weigh up the risk involved to both themselves and you for a new mortgage and the likely hood of you being able to maintain repayments.
From the adverse lenders point of view the more equity you have in a property simply means that if they should need to repossess the property they are more likely to get their money back, from your point of view it means you borrow less which will make the monthly mortgage payments easier to maintain.
Income, Equity, Adverse Credit together
These are not the only things a lender will look at to access your mortgage application but they will be the main factors considered when a lender works out how much you can borrow.
Your income will be determined by the income and affordability calculations worked out by the lender - different lenders can work out income and affordability in different ways which means that just because one lender has turned you down for this doesn't mean another lender will.
Equity is usually determined by your credit status and ability to provide proof of income. Typically speaking the worse the credit the less percentage of the properties value a lender will allow you to borrow for an adverse mortgage
Any financial difficulties you may have had in the past will also effect how much you can borrow. The adverse credit registered on your credit file will determine what loan to value (LTV) a lender will allow, a lower LTV will mean you borrow less which will mean your income will fit better, the higher the LTV the more you borrow. There may sometimes be a trade of needed in order to fit into a lending criteria - what we mean by this is that you may have a 15% deposit for your adverse mortgage, you want to borrow 85% of the purchase price but may need to reduce the new monthly mortgage payments to make them affordable, this can sometimes be done by lowering the LTV as you would be borrowing less.
