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Why are Bad Credit and none conforming Mortgages so misunderstood?
After spending more than a few years in the adverse, bad credit & none conforming mortgage industry, and after hearing what many people think an adverse, bad credit or none conforming mortgage was for, how they worked etc we thought we would put up the top 3 list of common misunderstandings and myths (some of which you have probably heard yourself).
Lets start with the obvious ones and then move onto some of the more obscure myths and misunderstandings about bad credit mortgages, adverse credit mortgages and none conforming mortgages.
Bad Credit Mortgages are for people with low incomes
We have spoken to a few people over the years that simply expect to be able to get a mortgage with an adverse credit lender just because their interest rates may be higher, their reasoning is that, whilst I may be on a low income I will be paying a much higher rate than with the high street which means I should get a mortgage.
It may sound obvious to some but this is not the case. Mortgage lenders that cater for people who have had credit problems will usually be more inclined to ensure the mortgage is affordable which will usually mean more income and affordability checks along with a more detailed breakdown and review of your income and outgoings - a number of lenders that specialise in adverse credit will work on affordability calculations and not simply multiply your income by a set amount, this is to ensure you can truly afford the mortgage you are applying for which will in turn typically mean your income will have to be slightly higher than the national average to meet the lenders affordability calculations.
Do Self Cert Mortgages mean I don't have to prove my income
This used to be the case many years ago, a potential borrower could simply write down a figure they were earning on the application form, sign to certify the income stated was true - with repossessions and mortgage arrears on the rise lenders have thankfully put a stop to this type of lending and now require that both employed and self employed self cert mortgage applications require at least some checks to be done although why a self employed person would need to self certify their income is anyone's guess.
For the self employed with no accounts, which will typically need a self cert mortgage (where their accounts aren't written up by a certified accountant) the lender may require to see their last SA302 which is a letter from the inland revenue stating their last years profit, whilst a number of lenders will be ok if the borrower hides the actual income on the letter, the fact that the borrower is having to provide this document proves they are actually self employed and are earning, if they have not been trading long enough to have the SA302 document (less than 12 months) then the lender will more than likely want to see some correspondence from the inland revenue addressed to the borrower.
A Bad Credit Mortgage application will damage my credit
Applying for any mortgage will leave a 'footprint' on the borrowers credit file, what this means is that a trace will be left showing that the borrower applied for a mortgage - the trace left however will not state which mortgage company was applied to or what sort of mortgage product was applied for, simply put, there is no way for anyone to tell if the mortgage being applied for was a bad credit mortgage or not they would simply know that a mortgage had been applied for. Whilst applying to multiple lenders could effect your credit score its likely to not effect someone who already has bad credit.
What I mean by that is, in the case of people with bad or adverse credit its unlikely they would pass a credit score with an adverse lender anyway and lenders that specialise in bad credit mortgages will allow for bad credit to be listed (depending on a number of factors such as mortgage loan to value) and its highly unlikely applying to different lenders will adversely affect your credit more than it already has been.
That being said, if the mortgage broker knows what they are doing they should be able to minimise the need to apply to different lenders by using mortgage packagers and speaking to the borrower about the types of bad credit they have registered against them.
