Obtaining A Home Loan With A Bad Credit History
If you have an undesirable credit score, there may still be a way for you to purchase a home by getting a home loan. It may not be a conventional lender that you use at the end of the day, but it is better, I suppose than not having your own home.
First things first, this article is written as a very general guide and does not constitute advice. Everyone’s situation is different, and before doing anything, you should consult a finance specialist, be it a bank or mortgage broker. If you need a great mortgage broker in Adelaide, then please get in touch with us today.
One of the first things to understand would be the different levels of a bad credit rating that could impact on lending. Your first tier would be the one that is not actually registered on your credit report. Probably one of the most disregarded and underestimated ways of making obtaining a mortgage through your own bank would be your internal bank score. The number of times that I have put in a loan application for clients that are very strong on paper only to be contacted by the bank to say the loan is declined due to a low internal score, astounds me. When you open a credit card, personal loan, or mortgage with a bank, those accounts will be constantly monitored. Being late a few days on your credit card payment or loan payment, even though you called the bank to “sort it out,” is something that can affect this score. Do this more than once, and you will almost definitely have a problem. You may not have any lending with your bank, but your transaction account is consistently overdrawn, this again internally flags on their internal system that this person is not good at managing money. So something as small as the aforementioned may cause your loan application to be knocked back. In this instance, the information is only with your current bank or lender and is an internal score. So the fix would be to use another lender and manage your accounts better going forward.
From here, your credit report is what will come into play from an external source. What your credit report lists are credit inquiries that lenders had done on you when you applied for credit. There will be a section on repayment history. The repayment history section covers any credit products that you have, where you had missed a payment or part payment over the14 day grace period you got when the payment was due. This will cover off the last two years of history on this topic. Your credit report will also contain a listing of arrears brought up to date. This will be a list of defaults that or unpaid debts that you had but have paid out in full. Lastly, but probably the most serious, your credit score lists any bankruptcies or debt agreements that you have against your name.
Your credit score is a score between 0-1200 that is linked to your credit report. 1200 is the best credit score you can get, and as you move towards zero, well, you are not that creditworthy. If we were to list the above mentions on your credit report in order of seriousness, the top being the lesser and the bottom the most serious, the list would be as follows.
• Number of Lender Enquiries Requested on You
• Repayment History
• Defaults and Unpaid Debts
• Bankruptcies and Debt Agreements
Starting from the top, credit inquiries are recorded on your credit score, and a number of them within a short time frame can bring your credit score down. I have had an instance where a client did not use a mortgage broker and instead went from bank to bank themself and put in over ten applications. Eventually settling on a product, but ended up not getting the loan as he had impeded his once perfectly good credit score. Lots of applications for credit can look like you are in financial stress and need money. Hence why this may bring your score down.
When you are looking for a loan in the space of credit impairment, you are almost certainly going to go to a non-conforming lender. The reason being your big four banks will not tolerate any sort of credit impairment, ie defaults listed on your credit record. There are a growing number of specialist lenders in this space that will help you to be still able to achieve your dreams.
Each of these lenders will have niches or policies that they are really stronger in. For instance, one might be very good at handling bankruptcies, for instance. Here is where a good mortgage broker is key. Firstly because most of these lenders do not have branch outlets, but also because understanding your specific scenario and its complexities are key to a successful mortgage application. If you are looking for a good mortgage broker in Adelaide, that’s us. Please get in touch. One thing these lenders have in common is that any of these defaults that are outstanding will need to be settled as part of the new loan. So the debts that are outstanding will have to fit within the finance. At no point are you going to get your finance with those debts still hanging above your head. Bankruptcies will need to have been discharged before you will be looked at for a loan. The next thing to also understand is that you cannot have everything. As your credit track record is not that great, you are now classed as a riskier lend. Rates on these loans will be higher, and loan to value ratios will be a lot more conservative. Depending on the type of default or issues you have had, it will also determine the type of product that you will get from that lender with higher rates going to the worst cases. The positive side to look at from this is while you may have a higher rate, you are being enabled to buy the property that you want or need, as well as being on the way to hopefully repair your credit record through future responsible behavior.
Again when it comes to non-conforming loans covering bad credit, I would strongly advise you talk to a professional. Castle Mortgages is a Mortgage Broker In Adelaide, and we know what we are doing. So if you would like to chat about your specific scenario, please contact us today.
Probably one of the biggest things to consider is, are you ready to take on credit again, before moving ahead with something along these lines. If bad financial behavior or negligence has not been addressed or rectified, I would strongly recommend you do not “pass go” on this one. You may want to have a chat with a financial planner or accountant who can give guidance in this respect. At the end of the day, the only person who will be able to judge this is you.