Bad Credit Home Loans
Compare Australian lenders and see who are more likely to lend to non-compliant bowers and those with poor or bad credit. Here is the run down on Bad Credit Home Loans:
If you have bad credit, you’ll find that getting a home loan is much tougher. If you’re looking to have your home loan approved, this guide will help direct you in finding the right loan and how to approach it.
Bad credit home loans, also known as non-compliant home loans, what are they?
At their centre, a bad credit or non-compliant home loans are almost identical to regular home loans: you build up your savings or equity for a deposit, borrow the agreed amount of money, and pay it back later (with an interest rate applied). However, since you have bad credit as a borrower, the loan will have a few more restrictions on it as well as higher expenses and charges.
Your average bad credit home loan will have:
- Increased interest rates. Loans given to bad credit borrowers tend to be larger than the most competitive of loan rates.
- Increased fees. Bad credit loans tend to have more ongoing and upfront mortgage costs you’ll need to pay.
- Decreased LVR. It means your deposit might have to be higher than 20% of the property you intend to get a loan out for.
Figure out how you became a bad credit borrower
Take a bit of a self-assessment and figure out the causes for your bad credit. You could discover you credit history is damaged when you:
- Bills are unpaid. Ensure you stay on top of all your payments in regards to the date and timing.
- Have already been denied for a loan. If you have already had your home loan denied by the provider, this will be kept and stored amongst your credit file.
- Fail to make payments on time. If you frequently make payments late, this will negatively affect your credit history. However, not as much as an unpaid bill would affect your credit history.
- Applying for credit far too often. It is common knowledge that you only really make an enquiry for credit once for every six months. If you opt to do more than this, it can be seen as a major red flag for lenders.
- Been listed as bankrupt. If you are listed as being bankrupt then you’ll automatically have a bad credit rating which will remain on record for seven years.
9 pointers for bad credit borrowers who are looking to apply for a home loan
If you have bad credit and are looking to apply for a home loan, there are a few things you can do to help your chances in being approved:
1. Obtain a valid copy of your credit file
Lenders will carefully assess your credit history before they decide to grant you a home loan, so you’ll need to talk to them about your bad credit on file with the upmost confidence. Free copies of your credit file are available every year. This will ensure that you know about any negative listing that you could potentially fight against if you choose to use a credit repair service.
2. Make moves to sort out your outstanding debts.
Lenders will ask you if you’ve done anything to address any past problems or tendencies, so make sure that you’re up to date with any debts to get the green light in that aspect from the lender.
3. Find out if you can be helped by a credit repair service
If any bad credit listings have been unlawfully put on your file, regardless if they exist, they are removable as there are proper procedures required to placing bad credit on an individual’s history. This is where credit repair services can assist you. Having these negative listings removed from your file would further increase your chance on receiving a home loan whilst avoiding the bigger interest rates and fees that a bad credit home loan entail.
4. Find a specialist lender and apply for a loan with them as they can look beyond the numbers.
There are a few specialist lenders out there in Australia who are very good with bad credit home loans. These particular lenders, like Liberty Financial or Pepper, look at other aspects outside of the numbers such as lifestyle change, illness or divorce, and will be sure to keep in mind your earnings as well as a range of other factors so you can receive a loan, even if you have negative listings or have been declared bankrupt before.
5 Don’t go applying for loans in a short period of time, more often than you need to.
All original enquiries for credit are kept in your credit file, which involves any previous loan applications. If you already have bad credit, be careful who you apply for a home loan with. Lenders will notice a few red flags about you if you’re making too many enquiries for credit in a specific time period.
6. Be open and upfront about your bad credit history.
As it is with all lenders, red flags in your credit history is very apparent to the non-conforming lender. Although, they will ask you to explain every bad listing, and you’ll be expected to know the reason behind every entry in all it’s detail. If you attempt to hide anything from the lender in your explanations, your credit rating will not improve. As a result, the lender will only grow more suspicious of you and could potentially decline your application for a loan on the basis that you were hiding something and refused to be transparent about your credit and living circumstances.
7. Consider getting Lender’s Mortgage Insurance (LMI) before applying
There are only two major LMI providers in Australia, those being QBE and Genworth. They have their own personalised criteria around lending which they will use to asses your loan, which in some situations can be seemingly stricter than you would see from your lender, resulting in the rejection of your application. A few lenders tend to not use LMI insurers, which means there’s next to no third part risk of being declined for a loan through LMI. For most of the time, lenders like these, such as Pepper, tend to have their own version of LMI.
8. Try not to apply for a loan with a spouse who has a bad credit file.
If your spouse has bad credit, you can sometimes avoid denial from the lender, as well as the higher interest rates and fees of a bad credit loan by putting in an application as a single individual. This will however limit the capacity of which you can borrow from the lender.
9. Rid yourself of outstanding debts to make your file stand out.
When your lender looks at your application, they'll take into account all of your current credit accounts, including credit cards and personal loans. If you can pay these off and close them before applying it'll be one less factor that will work against you when your lender decides whether to approve or reject you.
How you can find a bad credit home loan through mortgage brokers
If you’re looking to find a mortgage, a mortgage broker is more than qualified to help you do so. For those who have difficulty applying for any regular home loan due to unique situations, mortgage brokers can help, and actually, it’s what they specialise in – helping borrowers with unique situations find home loans.
You’ll find that a mortgage broker’s service is free seeing as they are paid in commission from the lender and not by you.
You can click here and speak with a Mortgage Broker free of charge and with no obligation.