How to Get a Mortgage with Late Payments and Defaults

How to Get a Mortgage with Late Payments and Defaults

Usually, lenders may decline applicants from getting a mortgage due to late payment or default. This can be disheartening. The good news is that some mortgage providers may be more understanding of your situation and may just approve your application. Late payments aren't considered to be a severe credit issue the first or second time. However, recent defaults can be cause for concern. In this guide, we explore the various facts you need to know about applying for a mortgage with late payments in your credit file. We also highlight practical ways to maximize the chances of being approved.

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What Happens if I Miss a Payment?

Although getting a mortgage with late payments and defaults can be trickier than if you had a good credit score, you can still find lenders willing to offer bad credit mortgages. This might take some proper research, but knowing which lenders to talk to can be helpful.

However, whether your application is approved or not will vary greatly from one lender to another. Factors like the level of arrears involved and the type of account will be put into consideration. For example, late payments associated with your mobile phone bill may not be taken as seriously as a mortgage or secured loan defaults.

Some lenders categorize all defaults as the same, and no matter how small, it will affect getting a mortgage. Additionally, when the late payments occurred will also be a determining factor. If they are recent and still uncleared, then they will inevitably have a huge impact on the lender’s decision than if they are historic, for example, three years old and you haven’t had any other late payments.

Whenever you miss a payment, it's highly advisable to get on the phone with your lender or creditor within a month of missing the payment. If you seek to make the payment, they may not mark it on your credit file, and this will save you from weakening your credit score. Once you’ve cleared the default, make sure you phone or email to inform them that it has been paid.

Keep in mind that payment can take three working days to clear. If you’ve told your creditor that payment is one the way, it may sway them from marking your credit file. You don’t want a mark of any kind on your file since it's likely to reduce your chances of getting a mortgage.

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The Difference Between a Late Payment and Arrears

It's important to understand the kind of mark that will appear on your credit history for defaulting:

  • A late payment gets recorded if you pay a bill after the due has passed.

  • A missed payment occurs when you entirely miss paying a bill.

  • A default happens after you miss several payments - anything from three to six payments on your account.

Usually, after you default, you will receive a written notice advising you of the same and are given 14 days to respond. If not cleared, the default will reflect on your credit score for up to six years.

With that in mind, you should know the difference between a late payment and arrears. Like we’ve mentioned, a late payment is one which missed the due date but was cleared within a month. On the other hand, if you're classified as “being in arrears”, it means you owe more than the payment for the current month.

How Late and Missed Payments Affect Your Credit Score

Like we noted above, defaults stay in your credit history for six years, as do late and missed payments. But they appear differently on your credit report. Lenders will assess the following areas when reviewing your application:

  • The number of missed payments

  • Your credit report

  • The type of credit account for the missed payment

  • How recent the late or missed payments were

  • If you have mortgage arrears on your credit report

  • The deposit amount

  • Other credit issues

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Can I Get a Mortgage with Late Payments?

Yes, absolutely. But it depends on factors like what you missed your payment on, how long ago it was, and how much deposit you have. You have two options when it comes to borrowing:

  • Secured borrowing, which is a type of loan linked to a secure asset, such as a car or mortgage payment.

  • Unsecured borrowing, such as a phone or utility bill, or a credit card.

If you have missed payments to unsecured loans, it won't affect your application that much compared to if you have late payments with secured loans. Likewise, if you have, say, less than three late payments to unsecured debts over the past five years, it's unlikely to affect your mortgage application.

Anything beyond that, and you may be expected to put down a large amount of deposit or pay a higher mortgage interest rate. It's even trickier for first-time buyers with a small deposit looking to get a 95 percent mortgage if they have a series of late payments.

You should also know that one of the biggest red flags for mortgage lenders is missed payment on your existing mortgage. While a single late payment may be overlooked, it's pivotal that you are up-to-date with your current mortgage payments.

Having said that, your best bet to securing a mortgage is to improve your credit rating, especially if you have late, missed, or defaulted payments.

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