Unexpected events in your life can happen and leave you in a less than ideal financial position, but you can still get a competitive home loan.
These credit issues can have an impact on your chances of being approved for a home loan, but there are options available. So, how can you find the best interest rate for someone with bad credit? The interest rate for a bad credit home loan will depend on a number of factors:
Number of defaults: Lenders will look carefully at the details if they find a default on you credit file. If you know you have adverse listings, let them know the details on the defaults upfront before you apply like:
- How many defaults do you have?
- When were they listed?
- How much were they for?
- Who was the lender?
- Are they paid or unpaid defaults?
Type of default: The type of defaults you have on your credit file could impact the type of loan and interest rate you will qualify for. Examples include a default listed by a telcos for less than $500, compared to a credit card default for thousands of dollars. With one minor default from several years ago, some lenders may offer you a standard loan.
Number of enquiries: Each time you submit a loan or credit application to a lender, it will be noted as an enquiry on your credit report. Lenders don’t know if this enquiry resulted in you taking out the loan, changing your mind or being declined. Lots of credit enquiries could be an indication that you are in financial trouble and result in the lender being more cautious about your application.
'Risk' factor: The more equity you have the less risk there is for the lender. The interest rate you are offered on a bad credit home loan will likely differ if you are borrowing more than 60% of the value of the property and include a risk fee or mortgage insurance to protect themselves against the risk of you defaulting again.
How far behind you are with current commitments: The further you are behind with your current financial commitments, the harder it will be to convince lenders that you are a low-risk borrower. It is important to try as much as possible to at least make the minimum repayment on most debts. Doing your best to keep up goes a long way in proving that you are serious about sorting through the mess.
Reason for financial issues: Events like marriage breakdown, losing your job, unable to work due to illness, having a failed business venture or looking after a sick family member are often unexpected and could all cause financial difficulties. The background as to why your bad credit history occurred is really important in evaluating whether things are different now. The reason, story and timing all need to stack up if your explanation is to be used by the lender as a reason to approve you.
Steps to find the best bad credit home loan
Step 1. Get all your facts straight
Before you start looking for potential loans and lenders, be proactive and get a free copy of your own credit report, www.mycreditfile.com.au. When you contact potential lenders, they will need information from your credit report as well as on all the factors listed above. Do your homework first and have all this handy when you speak to them.
Step 2. Begin with looking online
The best place to start looking is online. While comparison sites may list a number of lenders who offer bad credit home loans, you may also have to conduct your own web searches to get a broader list of lenders and brokers. Chat with different lenders and go through your scenario to see if they are able to provide you with competitive options.
Step 3. Find a lender who specialises in bad credit home loans
This is a really important step towards finding a competitive home loan. Lenders who specialise in bad credit home loans will have a broad understanding of what is available and have a number of loans and lenders with differing policies that may be able to assist you.
Step 4. Make contact
Call and speak to a number of lenders and weigh up the advice they provide. You can also gauge whether they are the type of lender you want to deal with by seeing how knowledgeable, helpful and comfortable you feel with the options they provide.