Can I get a bridging loan with bad credit?
In this article Auction Finance will discuss ;
· Whether you can secure a bridging loan with bad credit
· What you can do before applying
· How Auction Finance can help
So, can you secure a bridging finance with bad credit?
The quick answer is YES!
A bridging loan is an asset backed loan, this can be anything from cars to jewellery but in the main, secured on property. When assessing whether to lend to a customer for a bridging loan, a lender will tend to look at these four key factors;
The exit strategy
The loan requirements
The exit strategy
So, what do we mean by 'the exit strategy'? We mean - how are you going to repay the loan. There are two favourable exits from a bridging loan. Sale and refinance. If the exit is sale, I.E you intend to purchase the property to refurbish then sell; your exit is classed as sale. The lender will focus their underwrite against the property itself, the loan requirements and look at the market trends in that area for that type of property. They will then look at who they are lending to.
Would it matter that you have missed payments on your credit card in the last year? Probably not, however the lender will ask for rationale. Just be truthful here, honesty is honestly the best policy. If you forgot, say you forgot, if you changed over your direct debit and it missed, say so etc etc….The lenders reassurance is that the property is going to be sold in X amount of months and they are geared to a maximum of 80% LTV PLUS they have already deducted all of their interest and fees!
If your exit is refinance, then more work will need to be done in regards to getting the lender comfortable to lend to you. Again, be honest about the reason for the blips as it is easier to source the exit loan from the outset rather than omit something that you feel may not be applicable, let your broker determine whether it could impact your mortgage application…..
Looking at the property that you are wanting to purchase – how is this going to be affected by your credit score…..Well it’s not! That’s it really. The property is the property and if the numbers work, I.E. you are purchasing at the right price, what you are looking to do to the property (refurbishment) is in keeping with the local area price ceiling etc, then the property is a good’un. If you are buying a property that is just four walls and barely a roof, then this may be a little trickier as there are fewer lenders that would find this appealing to lend against, therefore having bad credit will also reflect in the amount of lenders open to you – but we are of the mindset nothing is impossible, you might just pay for it in the rate!
The loan requirements
Now this is an area that you are wanting to read with focus. There are bridging lenders that will lend up to 80% LTV (loan to value), complete in a short timeframe, will lend against complex structures, precarious properties and so on BUT you WILL pay for it in the rate and the terms of the loan if you have BAD CREDIT. In short, you are loaning money, a credit rating and report is a marker for a lender to evaluate how good you are at managing your credit. Therefore, poor credit = higher risk = higher rate and often, not always, reduced LTV.
Good news, there are lenders that are known as non status lenders, who lend purely on the semantics of the loan requirement, property and exit. Although they may request a credit report for their compliance file, they will not use it to make a decision as to whether to lend to you or not.
Hopefully the above has given you some guidance as to what the lender looks for when deciding to lend for a bridging loan. You can see the applicant does make up an important factor on deciding whether or not to lend but is not the deciding factor, in many cases the property, the loan requirements and the exit is more important. Check back for a post about how to get ready for a commercial mortgage application.
What can you do before applying for a bridging loan for bad credit; credit history monitoring;
Get credit ready! Outstanding payments, defaults showing or a general low score and no reason why…..Check out this article by moneysavingexpert.com which will give you a guide to your credit rating, credit history and useful tips of how to improve
It is important to keep tabs on your credit report/history to boost every chance of a successful bridging finance application at the best terms and lowest rates!
How can Auction Finance help get you a bridging loan for bad credit?
Auction Finance specialise in auction finance and bridging loans. We have access to over 400 bridging lenders. We are best suited to source you the right bridging loan for your requirements, with an efficient, discreet service, from application to completion.
Contact us we would be happy to discuss your case with no commitment necessary.