How to get your home loan approved with bad credit
If you have a bad credit file, you may want to consider a non-conforming home loan with a specialist lender. These loans are designed to help those who don’t meet the bank’s lending criteria. However, if you still have a stream of income, a bank may consider giving you a loan.
‘We look at your situation and we put it through our system. Everything is tied into a lending criteria and everything you tell us is all reported’ - Binny Singh, Store Manager of NAB George Street, Sydney CBD.
‘It automatically goes through to our centralised credit team - we go to our credit team and back the customer saying ‘we believe the customer will get their credit in order and this is the solution.’ For example, this customer wants to pay off their credit card, so they’re going to cut off the card. We’re giving them a personal loan and this is what they can afford because they’re working.’
Bad credit home loans are generally suited for people who have had something bad happened to them, such as a divorce, loss of job, injury or business failure which has resulted in their bad credit history.
Non-conforming lenders are far more likely to approve your home loan than the major banks but the interest rates often reflect the lender. The higher risk your loan is, then the higher the rate the lender will charge you.
If you can fix your credit file before you apply for a home loan, the lender won’t know about the credit problems you’ve had in the past so they may approve your loan if you have credit.
Mortgage brokers can be a good resource when seeking a home loan with bad credit. They can compare loans from a range of lenders who specialise in these types of loans to find the right one below. You can start an obligation-free discussion with a broker by filling out the form below.
Speak to a home loan expert about bad credit options
How can I get a good mortgage with bad credit?
Lenders will look at your credit rating when assessing your eligibility for a mortgage. As such, there are some things you can do to help with this. Paying bills on time is very important. Bill payment history is taken account of in your credit rating. If you have consistently demonstrated an ability to pay your bills on time, then the chances are that you will be approved for additional credit. Even if you have had problems with this in the past, always remember that it is never too late to start.
Another good idea is to have some savings set aside. The ability to save conveys that an individual is financially responsible. It also shows that you are able to offer some money as a down payment and that you will be prepared in the event that you need additional money for some unforeseen reason.
What is bad credit?
- Arrears. Missed payments on your home loan - the more missed payments you have, the more cautious your lender will be.
- Bad credit history. A list of your credit defaults, judgements and other credit enquiries on your credit file.
- Lender credit history. Your past credit history with your lender is very important - if you’ve had problems in the past with the same lender, then they may not approve your loan.
- Unpaid bills or tax. These aren’t obvious on your credit file, but may be visible on the supporting documents that you bring to get a loan.
What is on my credit file?
- Date of birth
- Current and previous addresses
- All the loans you’ve applied for the past 5 years
- Any negative history against your file
Check out your credit history
Order a copy of your credit file
Receive email alerts whenever specific changes occur on your credit file for 12 months. You also receive a copy of your credit file despatched within one working day.
Receive your credit file with information on:
- Details of consumer credit enquiries
- Details of overdue consumer credit accounts
- Commercial credit enquiries
- Details of overdue commercial credit accounts
- Bankruptcy & Court Judgements
- Writs & Summons
- Information on your current relationship with a credit provider
- $79.95 p.a. annual fee
Do you qualify for a bad credit home loan?
Generally lenders tend to dislike customers who didn’t pay for their defaults or those who have constant credit problems.
- Small default. If you have a small default (less than $500) and it has been paid off more than six months ago, then you may borrow up to 90%.
- Medium default. If you have a medium default (less than $1000) in paid defaults from financial institutions then you may borrow up to 90%.
- High default. If you have a high default (less than $3000) in paid defaults then you may borrow up to 80% of the property value. Larger defaults of up to $10,000 will be considered by the lender on a case by case basis.
- Unpaid defaults. If you have any unpaid defaults on your credit file, then you can borrow up to 80% with a non-conforming lender.
- Criminal history. If you have had an judgement writs then you can borrow up to 80% with a non-conforming lender.
Who are the non-conforming lenders?
Finder Home Loans gives you access to many non-conforming lenders that can help you get a loan if you have a bad credit history. These include;
- Fox Symes. Fox Symes is the large provider of debt solutions in Australia, they help over 100,000 Australians each year to help them resolve their debt
- eChoice. eChoice aims to provide consumers with a choice of products and services. They can help you sort out through hundreds of loans to find you a debt solution.
- Pepper Home Loans. Pepper Home Loans work specifically in the bad credit area and with those who have defaults.
Should I consolidate my debt?
By combining all your debts into one repayment, you might make it easier to manage your finances and overall repayments. This will also prevent any more damage on your credit history and could stop the bank from taking your home. However, you cannot add any more defaults or debts into your credit history during this time. By consolidating your debts, you’re showing a solution to a way of paying off your debt.
A negative about debt consolidation is that you might have to pay a higher interest rate on your home loan and you’re dragging out debt for as long as possible. Credit cards are usually short term debts, whereas home loans are a long term debt. Combining the two means that you are dragging out your credit card debt for much longer.
Can I get equity out of my loan?
Lenders see equity releases as a problem if you have a bad credit history. For this reason, they usually have cap on the amount you can get. To see if you’re in a position to get an equity loan, you should enquire with your lender first.
Most lenders prefer if you have made only 1 - 3 enquiries in the last 6 months. A credit enquiry is when your lender attempts to seek information about the availability of funds in your account but your identity remains anonymous. Credit inquiries are specifically designed to know how much you need to borrow or to determine your credit-worthiness.