Getting a Home Loan With Bad Credit
Do you feel like your credit score is hurting your chances of owning that dream home you’ve always wanted? You’re not alone.
When it comes to saving up for a deposit on a house, staying on top of daily living expenses like rent, utility bills, car payments and credit card repayments can make it hard to build your savings.
If you fall behind on certain payments or have previously experienced financial hardship, it can impact your credit score and chances of being approved for a home loan. While it’s not impossible to get a home loan on bad credit, you’ll have to pay higher interest rates and shop around for a lender who can cater to your financial situation.
But how do you get bad credit in the first place? And how does it affect your ability to get a home loan?
Bad Credit Explained
In Australia, many people don’t know what their credit score is or that they even have one.
Basically, it’s a number between 0 – 1,200 that represents how trustworthy you are as a borrower. The higher your score, the more trustworthy you appear to lenders. Your credit score is calculated based on financial and lifestyle decisions such as change of address, previous employment, loan defaults, missed payments and financial contracts – all of which can have a positive or negative impact on your credit score.
Some of the most common scenarios that can lower your credit score are:
From phone bills to car loans, power bills, rent, credit cards and mortgages – failing to meet these payments on a regular basis can lower your financial credibility. If any of these payments are outstanding and don’t get rectified within 30 – 60 days, your credit provider will inform the credit reporting agencies and list a default against you.
Once a listing has been made on your record, it stays there for 5 to 7 years.
When you fall behind on your mortgage payments, you risk getting evicted and having your home repossessed.
Before this happens, your lender will send a default notice that gives you 30 days to either resolve the payment, ask for a special payment plan or sell the house. Regardless of the outcome from this scenario, you still get a default next to your name.
Bankruptcy is a life-changing and emotionally taxing event that impacts your financial position in many ways. When you first declare bankruptcy, you enter a three-year period known as ‘undischarged bankruptcy’ that places certain restrictions on you including:
- Unable to travel overseas
- Limited to owning certain assets
- Unable to apply for certain credit products like car loans or credit cards
After three years, you’re declared as a ‘discharged bankrupt’ and regain the freedom to apply for loans and credit products. However, your finances are heavily monitored and you must cooperate with the Australian Financial Security Authority (AFSA) during this period.
First Impressions Count
When you have bad credit, it’s harder to prove to lenders that you’re capable of paying back the loan.
That’s because each lender has their own unique criteria for vetting applicants. And if their system doesn’t like your financial history, you’ll be rejected outright. This is not only major setback, the application becomes part of your credit history for every future lender to see.
Pretty daunting, right?
How to Apply for a Bad Credit Home Loan
While it’s definitely harder to get a home loan on bad credit, it’s not impossible, and certain lenders have special services to accommodate for financially-impaired individuals. These specialist lenders have strong connections with leading banks and will work closely with you to get the best deals available.
Most lenders will be happy to have an obligation-free discussion with you. You can approach them any time to discuss your lending options, including their bad credit home loan features, interest rates and repayment plans.
As you look around for the best deal, here are some useful tips to remember when approaching a lender:
- 1.Watch Out for ‘Robot’ Lenders
As mentioned above, every failed loan application becomes part of your credit footprint.
To avoid leaving behind this trail for others to follow, choose your lenders carefully and avoid companies who use computer-based credit scores to judge whether you’re a suitable candidate or not.
These automated systems can reject your application before it even gets reviewed by a real person. So don’t let your applications go to waste – find lenders who put you in front of people, not a computer screen!
- 2.Look for Specialist Lenders
The majority of lenders don’t have special services that cater towards financially impaired individuals.
However, that doesn’t mean these companies don’t exist.
Look for lenders who specialise in securing loans for people with bad credit. Without being charged unreasonable interest rates, they can help you access bad credit home loans from top financial institutions.
Many lenders can also help repair your credit history and improve your chances of borrowing in the future.
- 3.Have Evidence of Good Finances
Just because you’ve had misfortune in the past, it doesn’t have to hold you back forever.
To prove you’re capable of handling a home loan, you need to give examples of good financial decisions like paying your rent or utility bills on time, repaying other loans, and also rebuilding your savings.
All of these elements will improve your chances of appearing trustworthy to financial lenders.
Finally, a Second Chance at Home Ownership
Bad credit is a disadvantage, but it doesn’t have to be the end of your journey towards owning a home.
By choosing a lender who offers professional guidance, affordable interest rates, and a systematic process to repair your credit history – you can finally get that dream home you’ve always wanted.
Article provided by Positive Lending Solutions