5 tips for getting a home loan with bad credit
Applying for a home loan is already a stressful borrowing process, especially if you have bad credit. But don’t despair—there are steps you can take to get approved for a home loan with a bad credit rating. Many factors can affect someone’s credit history; getting sick, redundancy, forgetting to redirect bills on time if you move, previous bankruptcy history, or even just an accidental slip on timing. All of these life mishaps can result in missed or late payments.
If your credit rating has suffered from these types of examples, then worry not, there are things you can do to help your chances of buying a home.
Can you get a home loan with bad credit?
It is possible to get a bad credit home loan, although for obvious reasons, it can be more difficult than getting a mortgage with perfect credit history. Generally, people with lower credit scores and higher debt-to-income ratios will have a harder time securing financing for a house. Before applying for a mortgage, you may want to consider the following:
Get your credit report under control
The first thing you may want to consider if you are looking to get a bad credit home loan is to get your credit report under control. You can get a credit check by obtaining a copy of your credit report from Equifax.
Knowing exactly what’s in your report means you can then make a plan to get it back on track. Debts that are overdue will stay on your file for up to five years, but the good news is that your credit file may be updated if you pay out the balance of a debt, whether that be credit cards or personal loans. If you have credit issues, then potential lenders will want to know what actions you’ve taken to address those problems, so it’s best to get any bill, loan or credit card defaults paid off so they can see you’ve made good progress.
from money worries
Start today with a FREE no obligation appointment
If any information on your file is not accurate, make an immediate request to have it corrected so it doesn’t continue to affect your home-buying plans. If you think there’s been an error, speak to the credit reporting agency and the credit provider involved to get it sorted out.
If you’re turned down by the first lender you approach, there are others you can try; each lender has slightly different lending criteria. So if one lender didn’t look on your situation favourably, don’t give up – another might well take a different view.
With a wide variety of specialist lenders available, MyBudget clients have access to the MyBudget Loans team of lending specialists. We pair you with the best lender and lending solution for your circumstances. MyBudget Loans understand that real people may fall under hard times, which is why they’ll look at each applicant on an individual basis to explore all possible mortgage options, whether it be for a new home or an investment property.
EXTRA HOT TIP: Shopping around is a smart thing to do, but it’s important to remember that multiple credit applications in a short time frame can be bad for your credit score. So, it’s best to be cautious and only apply for one type of credit at a time. Working with someone like us will help you avoid these traps.
Explore alternative lending
If your poor credit history is the only thing holding you back, you might be able to get a mortgage from a non-conforming lender with a more flexible lending product.
Mainstream banks tend to have very fixed credit home loan assessment rules. Once upon a time they were pretty much the only option. Thankfully, the world has moved on and now alternative lenders like those we partner with offer a different approach. They can consider your application on its individual merits and look at a wider range of loan options.
Make sure you are in a situation to afford the repayments
A non-bank lender is still responsible with their lending practices, similar to mainstream banks, and they’ll want to be sure you are in a financial situation to comfortably manage the loan repayments. Make sure that your budget is comfortable and that you can make the proposed monthly repayments on time. No one wants you to be in financial hardship and put you at risk of default.
Each lender may claim to have the lowest interest rates, but it’s also important to check which non-conforming lenders are offering the most competitive rates before making additional applications. You’ll want to be sure that you can not only afford the repayments but also have wriggle room to make extra repayments if you wanted to.
Look at alternatives to Lender’s Mortgage Insurance (LMI)
If you’re trying to buy a home with a deposit of less than 20 per cent, you’re likely to find you need to pay a fee for something called Lenders Mortgage Insurance (LMI). This extra cost covers the lender if you were to miss payments down the line. LMI providers are a separate business and have their own lending rules – so they’ll consider any application as carefully as the main lender. They may turn down an LMI application because of a bad credit history or income source, even when a lender has given approval.
A different way of doing this is rather than using a third-party mortgage insurer, some lenders can offer a Lender Protection Fee (LPF) which gives them the flexibility to assess your loan without having to get outside approval from LMI providers.
If you’d like more information on bad credit home loans/bad credit mortgages, talk to us today about how we may be able to help you make contact with lenders that can help if the major banks have said ‘no’ to your loan application process. In addition, MyBudget has helped over 130,000 Australians live their life free from money worries. By setting up a budget, the automated system will work to improve your poor credit rating and credit situation by paying down debt and paying your bills on time.
Contact MyBudget today for your FREE appointment by calling 1300 300 922 or enquire online.