What You Need to Know
Filing for bankruptcy can have a lasting impact on your financial record, but it doesn’t mean you’ll never be able to own a home. While securing a mortgage can be a little trickier, there are still ways to get a deal that works for you. Here’s how to get approved for a bad credit mortgage.
How Bankruptcy Affects Being Able to Get a Mortgage
Bankruptcy remains on your credit file for six years from the date of the bankruptcy order, so it can have a long-term impact on how lenders perceive you. You will be seen as a higher risk to lenders, and you are unlikely to ever borrow a bigger sum of money than a mortgage. So, it can have the following effects on your application:
- Being rejected by a number of mainstream lenders, giving you a smaller pool to work with.
- Higher interest rates to compensate for the perceived risk of lending to you.
- Needing a higher deposit compared to the usual 5-10% for borrowers with good credit.
- Lenders may carry out stricter affordability checks and delve deeper into your financial history.
How to Improve Your Mortgage Eligibility
If you’ve been bankrupt and are looking to get a mortgage, you should consider the following steps to increase your chances of approval.
Rebuild Your Credit Score
Since bankruptcy significantly has a huge impact on your credit score, it’s a good idea to take steps to improve it wherever possible. You should ensure all bills and debts are paid on time, and, if applicable, use a credit-builder card responsibly. You should also check your credit report regularly and correct any errors, and make sure that you are registered on the electoral roll.
Wait Before Applying
Waiting a few years post-bankruptcy can improve your options. The longer the time since your discharge, the better your chances of approval. Everyone’s circumstances are different of course, so be sure to balance waiting for a few years with getting your foot on the property ladder at a good stage in your life.
Show Stable Income and Employment
Lenders prefer applicants with a stable income and long-term employment, so if you have held down a job for a long period of time this will very much work in your favour. If you are self-employed, keeping accurate financial records and tax returns can help prove that you are bringing home a stable wage every month. It can be a good idea to work with an accountant for this.
Work with a Mortgage Broker
Finding a mortgage after bankruptcy can be a complex process, and many lenders may not be willing to offer you a loan. That’s where a mortgage broker comes in. Every mortgage application you submit is recorded on your credit file, and multiple rejections can further harm your credit score. A mortgage broker ensures you only apply to lenders where you have a strong chance of approval, reducing the risk of any further hits to your credit.
Working with a broker increases your chance of success, and they will also be able to negotiate the best possible terms for you.
What Next?
Getting a mortgage after bankruptcy is challenging but not impossible, especially if you have a good mortgage broker on hand. So why not start the process today?
