Payday loans have no direct influence on your mortgage. However, the fact that you have utilized this type of loan may indicate that your financial condition is precarious.
When people are unable to make ends meet, they turn to payday loans, which is not a good indicator for a mortgage lender. However, you are unlikely to be turned down as a result of it, particularly if you have paid your loan on schedule.
Is it possible to get a mortgage after taking out a payday loan?
Yes, a mortgage can be obtained after taking out a payday loan, apart from some situations. If you have poor credit and payday loans on your credit history, your prospects of getting a mortgage are slim, but not impossible.
Lenders will look at a number of things when they look at your application, such as your age, how much debt you have and whether you should apply for bad credit loans.
How frequently you take out payday loans, your loan to value ratio (LTV), and if you’ve had any other credit problems in the past are all variables that influence whether you’ll be accepted for a mortgage.
As with any mortgage, the greater the deposit you can put down, the better your chances of getting approved.
It is possible to get a mortgage even if you’ve used payday loans in the past.
Why do payday loans cause concern among mortgage lenders?
Most lenders are wary of those who have had to rely on payday loans. Their reasoning is that if you’ve had to rely on payday loans to make payments in the past, you’re likely to do so again. This may affect how and when you repay the loan.
Lenders make assumptions, and one of them is that you don’t have a stable financial foundation if you’ve taken out a payday loan. Payday loans, in other words, sound alarm bells for lenders.
Regular payday loan use can pose problems to potential mortgage lenders since mortgage assessors may view it as financial mismanagement and a risk indicator.
We’ve spoken with hundreds of consumers who have been turned down as a consequence. That isn’t to suggest there aren’t lenders out there for you; luckily, there are mortgage lenders that will accept payday loan usage and provide mortgages at low rates.
Don’t worry if you’ve already taken out a payday loan. There are still lenders who will take your application into account. There are also some excellent rates available. The trick is to speak with the proper lender.
The first thing to remember is to choose a lender that accepts payday loan applications. If one bank or mortgage lender refuses to accept those who used payday loans recently, some will refuse those who used them at any point in the past, but there will be other lenders who will accept customers with past repaid payday loans.
The key is to find these lenders who will. It may seem simple phrased like this, but knowing where to go for this information is critical. Mortgage brokers aren’t always aware of the requirements, and they don’t usually clarify how payday loans affect application rates.
What to Do If You’ve Had A Payday Loan That Wasn’t Repaid
First and foremost, don’t be frightened. It is not forbidden to have a bad credit history, but it is best to wait at least a year after your previous late loan. The longer the time frame, the better.
If your application is denied, you can repair your credit history and reapply later. When deciding whether or not to give you a mortgage, a bank pays more attention to how much money you make now and how much debt you have.
Another thing to keep in mind is that payday loans are not the same as traditional loans. Only once they’ve been forwarded to collectors will they have an impact on your credit score.
Speak to mortgage lenders and be transparent about your use of payday loans in the past. It cannot hurt to ask them directly before putting in an application.
Can a greater deposit help me secure a mortgage after taking out a payday loan?
If an applicant has previously taken out a payday loan, lenders may be more willing to lend lesser sums to them, which is why having a greater deposit might help with a mortgage application.
The amount you must borrow from the lender is reduced if you pay a larger proportion of the property value upfront. This is referred to as the loan-to-value ratio, or LTV, by your broker.
What is the loan-to-value (LTV) ratio?
It’s the percentage of the loan you’re seeking compared to the price of the asset you wish to buy.
For instance, if the house you wanted to buy costs $150,000 and you had a 10% deposit of $15,000, you’d need a $135,000 loan.
To find the LTV rate, divide the mortgage amount by the property’s value and multiply by 100. So,
$135,000 / $150,000 (x 100) = 90%
A higher LTV rate of 90% suggests a bigger risk to the lender because it means lending a larger amount and, as a result, requesting more monthly repayments from you as the borrower.
Before you apply for a mortgage, always have a broker look at your LTV rate and tell you which lenders are most likely to accept you.
Checking your credit report can be useful in understanding where you stand when it comes to taking out a mortgage.
What can I do to remove a payday loan from my credit report?
A payday loan can remain on your credit record for up to six years. If you have one, paying it off and paying off the debt in full will help you remove it from your report faster. It will also improve your debt-to-income ratio.
Does your credit report claim you took out a payday loan but you never did? You can dispute the debt with the original creditor and request proof of the arrangement.
Should I check my credit report if I take out a payday loan?
Did you ever take out a payday loan, you should check your credit report before applying for a mortgage. Knowing your financial history can help you save time. After all, there’s no use in applying to a lender whose requirements you won’t be able to satisfy.
A mortgage denial may create delays, cost you money in application fees, and may even have a bad influence on your credit report. Try to avoid these by checking your credit report and speaking to the mortgage lender first.