Can I get a homeowner loan with poor credit?

Looking for a homeowner loan and wondering how a less than perfect credit history will affect your chances?

Well, it’s true that secured lenders may be more willing to lend to people with adverse credit than unsecured lenders – but your credit history will still be considered when you apply.

Let’s find out more.

Your credit history

First things first – what is a credit history and how does it affect your chances when you apply for credit? Well, your credit history – which you may have also heard referred to as a credit rating or record – is a record of all your credit and other financial agreements going back over at least the last six years.

If you have a loan, credit card or mortgage, your credit history will show when you make your repayments, how much you pay, how much you have left to pay and how much total credit you have available to you. If you miss a payment, make it late or default on one of your agreements, this will also be listed here.

"Every lender has its own lending criteria."

When you apply for new credit, the lender takes a look at your credit history. They use this record to get an idea of the type of borrower you are.

Every lender has its own criteria by which is measures applicants, but they all want to be sure that you’re a responsible borrower.  If your credit history shows that you have had trouble with borrowing in the past, whether that’s because you’ve been late with a couple of payments or you’ve received a County Court Judgement, this may make lenders wary of approving your application.

Your home as security

Whatever type of credit you apply for, your credit history will be considered. But while when you apply for unsecured credit (like a personal loan or a credit card), the lender only has your word and your previous record to go on that you’ll pay the money back, a secured loan provider has an added safety net.

Secured loans are so-called because they’re secured against something you own – usually your home. So, if you take out a homeowner loan and then stop making your repayments, the lender has the right to repossess your property in order to get back the money you owe them.

This added security makes homeowner loans different to unsecured loans in a few key ways:

• The interest rate may be lower.
• You can borrow more.
• You can spread your repayments over a longer time.
• Your credit history may play a smaller role in the application process.

To be clear, we’re not saying that a homeowner loan provider won’t look at your credit history at all, because they will. However, because they have your home to use as security, they may be more willing to accept a borrower who has struggled with managing credit in the past than a lender who doesn’t have this safety net.

If you’ve had trouble borrowing in the past, a homeowner loan may be an option. But you must be certain you can afford the repayments. This will be something that’s also checked carefully by your lender - and if they think your current income and outgoings leave little room for more repayments, they may turn you down.

More importantly, if you take out the loan and then stop making the repayments, not only will your credit history be further damaged, but your home will also be at risk.

Do I have other options?

While a homeowner loan can be a good option if you want to borrow but your credit history isn’t as good as it could be, it’s not your only one.

If you own your home and have a good amount of equity in it, you could consider remortgaging. Your current lender or a new one may agree to let you extend your mortgage by the same amount you’re thinking of borrowing through a loan. You can find out more about this here.

And if you don’t want to secure credit to your home, there are personal loan providers that specialise in lending to people with poor credit histories.

"Check your credit history."

Our advice is to check your credit history using one of the free credit checking services. Once you know this, you can use the services to search for products for which your own credit history makes you eligible. This can help you narrow down your search for a loan to the most suitable products.

And if you’re able to, you can simply wait until your credit history has improved before you apply for credit again. This should open you up to better deals so you have more options from which to choose.

Read our tips on how to improve your credit history here.