When you become part of a couple your entire life merges with another person. This includes the good and bad of your partner's financial history.
Most people in a relationship don’t consider how each other's credit history may affect their future financial plans. But when you apply for a loan to make a major purchase like a home, both partners’ financial history will be put under scrutiny. With that in mind, it’s best to have a clear idea of what to expect before you apply.
If during a review of yours and your partner’s financial history you discover that one of you has bad credit, you don’t need to give up your dream of owning a home just yet. Simply follow these steps.
Assess your financial options
Before making any decisions it is best to do a full assessment of both partners’ financial situation. This gives you a better idea of the opportunities open to you. Despite any bad marks on your or your partner's credit history, there are options available, including seeking a loan from a non-traditional lender who allows for bad credit borrowers.
Another alternative is adjusting the amount of finance you seek. A bank is often more willing to offer you a home loan with marks on your credit history if you ask for less money, as this lowers the risk the bank takes. It’s also a good idea to close credit cards and pay off loans to ensure you are more financially attractive to a lender.
You may also consider asking a parent or family member to go guarantor to help offset the bad credit and allow you to access a standard home loan rather than the a more expensive bad credit specialist home loan. However, keep in mind that this has some risks for the guarantor, as they will need to put their property up as security for your loan.
Want help finding a home loan with a bad credit history? Here are some specialist lenders
Take on the debt and ownership alone
Another option is taking on the debt and ownership alone. This means that any partners’ credit or debt issues won’t affect the loan application. This allows you to apply for a competitive home loan without any concerns that bad credit will stop it from being approved or affect the loan amount, interest rate or loan type you can get.
If considering this option, make sure you are able to take on this very large financial commitment. You will also need to show a lender that, you not only qualify for the loan, but that you can service it on your own. We recommend seeking independent financial advice if you decide to take on the debt and ownership alone.
It is important to note that applying for the loan on your own as a solo applicant won’t rid you of all concerns regarding your partner’s finance issues. Lenders will still take these into account when assessing your loan. Often a lender may consider a partner who is not on the loan as a liability, and this will in turn affect how a lender views your ability to repay.
Something else to consider if you are thinking of taking on the debt by yourself is what will happen if your relationship breaks down or circumstances change. If you are the sole name on the property title and mortgage documents you are the only person legally liable for that loan. This means that even if your partner has helped you with all the financial aspects of the home you are the only person liable, so if you break up there is no recourse for you to seek compensation from them.
Another consideration is that if your partner loses their job, you cannot claim any financial assistance as you are the only person required to repay the loan. Alternatively, if you lose your job you will have to consider how this will work without your partner on the property documents.
Delay property purchase
The lure of home ownership and having the great Australian dream is hard to deny, but if you or your partner has a bad credit history, you may need to reassess your timeline when it comes to property ownership to allow for any credit issues to be lessened or neutralised.
Most negative marks on credit files will automatically be cleared after five years, so if you can put off purchasing a home until this time has passed you will have a better chance of getting a home loan. This also allows you to save up a larger deposit, create further savings history and settle other debts you may have. All of these are very attractive to lenders when considering your home loan application.
Showcase financial stability after debt
Being consistent in your employment record, your savings history and your living situation can help you and your partner look more attractive to a lender, even with some marks on a credit file. If the issue of concern happened a few years before looking for a home, then attempts to improve your credit history history following the incident will go a long way to quell a lender's reservations.
Speak to an expert
If you have gone through all your options and are feeling a bit overwhelmed you may be better off seeking expert advice. The two main professionals that can help you get a better view of you and your partner's financial outlook and ability to get a home loan are a financial advisor and mortgage broker.
A financial advisor will help you get a better scope of your current situation as well as advise you on actions and pathways that will get you to your goal of home ownership. A mortgage broker will be able to specifically help with the home loan search and application.
As mortgage brokers are professionals who deal with lenders, often they get to know the nuances of each lender and can help advise which lender may be best suited to your needs. They can also use this knowledge to offer you advice on whether you need to seek a specialist lender who deals with bad credit, or whether there are particular lenders outside of this that may look kindly on your loan application.
Don’t let bad marks on your partner’s credit history dampen your hopes of purchasing a home. You just need to consider all your options and be open and honest with each other about what to do next.