Credit Building > How to buy rental property with bad credit and no money

How to buy rental property with bad credit and no money

Wollit Team2 minute read · Updated 1st July 2024

Buying a rental property with bad credit and no money can be difficult. But it's not impossible. This guide will help you understand the process and find solutions to make it happen.

Why invest in a rental property?

Renting out a property can be a great way to earn extra money. When you rent a property, your tenants pay your mortgage, and you also get extra income. This can be especially good when interest rates are low and savings accounts don't earn much. Plus, property prices have historically gone up over time, making it a fairly stable investment.

Can I get a buy-to-let mortgage if I have bad credit?

Having “bad credit” means you have a history of missing payments, defaulting on loans, or making other financial mistakes that hurt your credit score. This can make it hard to get a mortgage because lenders think you're a higher risk.

However, even if you have bad credit, you can still get a buy-to-let mortgage. Here is what you need to know:

Many buy-to-let mortgages are interest-only, which means you only pay the interest each month. This can lower your monthly payments and make the loan more affordable, although you need to have a plan to pay back the loan amount at the end of the mortgage term.
Most buy-to-let mortgages require you to put down a higher deposit, usually 25-30%. This can increase if your credit score is very poor.
You will also need to have a business plan for how you will manage your property. Lenders will want to know how much rental income the property can make, which should be at least 125% of your mortgage payments.

However, the biggest impact to your ability to get a buy-to-let mortgage will come down to your credit history and score. To qualify for lower interest rates (which can add up to quite a bit over the long life of a mortgage), lower deposit requirements, and higher loan-to-value ratios, you’ll need to have a good credit score.

The good news is that your credit score is not set in stone. Just because you have adverse events like defaults or missed payments in your file doesn’t mean that you should give up on your credit score.

In fact, there are many apps nowadays that can help you build, repair, and improve your credit score. One such app is Wollit.

Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This helps you build a history of timely debt repayments, which is the main factor that matters for your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian. This can add another line in your credit report that shows lenders you pay your bills on time and help you make the most of your rent while you prepare to become a landlord yourself.