Applying for a homeowner loan with bad credit
I have a bad credit score - can I apply for a homeowner loan?
If you have a bad credit score, you might think applying for a homeowner loan is out of the question. Our guide explains what your options could be.
Homeowner loans could allow you to borrow large sums of money by securing the loan against your home. There is no one-size-fits-all loan – you could be accepted even if you have a bad credit score. Our guide explores everything you need to know about applying for a homeowner loan with bad credit.
It's all about the lender
Your eligibility for a loan will vary from lender to lender. Some homeowner loan lenders will only accept people with a spotless credit file, while other companies specialise in homeowner loans for people with bad credit. If your credit score isn’t perfect, it makes sense to limit your loan search to companies who offer bad credit loans.
If you have a poor credit score, you won’t want to damage it further. When you search for a homeowner loan, it’s important to see if you’re eligible before you apply – luckily, most lenders offer eligibility checks. Checking before you apply means you could save your score from the damage caused by unnecessary applications.
I have bad credit. Is a homeowner loan right for me?
Homeowner loans could be a good option if you have a poor credit history, as you could have a higher chance of being accepted compared to other loans. Offering your home as collateral is a serious commitment. If you repeatedly miss payments, it could put your home at risk of repossession – so lenders see you as less of a risk.
What does this mean for you? The increased risk you’re taking on means that lenders may take other factors into account and not just your credit score. So, if you have bad credit and you’ve been rejected for personal loans, you could still be accepted for a homeowner loan.
Remember, only ever consider a homeowner loan if you’re confident you can keep up with the repayments. If you have a bad credit score, you might have had problems keeping up with your payments in the past. And if you think you might still struggle with your finances, a homeowner loan isn’t right for you.
Personal or homeowner loan - which is best for bad credit?
Your credit score can play a large role in determining your eligibility for any kind of finance. The lower your score, the higher the risk for the lender.
When it comes to personal loans, lenders will look closely at your credit score (among other things). They’ll check to see if you’ve kept up with your previous credit commitments to decide if you’re a responsible borrower. Not all lenders will turn you away because of a bad credit score – but they may balance out the risk by charging you a higher interest rate.
With homeowner loans, it’s slightly different. Your credit score will still play a part in your eligibility – but not to the same extent. Lots of factors are taken into account when you apply, such as your affordability, the amount of equity you own, and your repayment history.
Will applying for a homeowner loan affect my credit score?
Applying for any kind of finance may temporarily affect your credit score. After you’ve checked your eligibility and decided to apply, lenders will run checks on your credit history. This will leave a visible ‘footprint’, showing other lenders that you applied for credit.
Applications for credit can make your credit score dip slightly on a short-term basis. Once you start repaying your loan on time and in full, your credit score should recover. Over time, keeping up with your repayments should improve your score.
Can a homeowner loan improve bad credit?
If you’re trying to give your credit score a boost, you might be wondering if a homeowner loan can help. Homeowner loans are often long-term commitments – so you’re not likely to apply for a homeowner loan simply to improve your credit. However, a homeowner loan could help rebuild your score over time.
Making every payment on time and in full proves that you’re a responsible borrower. If you meet all of your homeowner loan repayments, your credit report will show that you can manage your finances over a long period of time. Along with other factors, this could help repair your credit score and show other lenders you can be trusted with more credit.
Juggling multiple repayments could mean you fall behind or miss payments, which could damage your credit score. A homeowner loan could be used to consolidate all your credit into one place and make your repayments simpler to manage – which could then have a positive impact on your credit score.
Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
