Even careful individuals can go through rough patches in their lives when finances can be stretched to the limit, resulting in defaults and missed payments. Years later, after things are back on track, with these credit issues still listed on your credit record, you can struggle to get a home loan.
Divorce, failed business venture, illness, job loss can happen when you least expect it. But don’t give up. There are home loan options for people with a less than perfect credit history. But before you apply, see what things you need to be mindful of.
Get a copy of your credit report
Your credit report is really important for lenders in determining if you are a good risk. Many borrowers don’t regularly check their credit report, so they have no idea what is listed or if there are any mistakes. By checking your credit report, you can ensure that all listings are correct and resolve any incorrect information with the lender involved.
Be cautious when applying for credit
Lots of credit enquiries, paid and unpaid defaults and loans to payday lenders can all raise concerns for lenders. Always approach applying for credit with caution. Do your homework first and then apply for the one that you actually want. Personal loan, car loan, credit card, interest free, store card and even contracts with utilities providers like mobile phone or electricity, can all result in a credit enquiry on your credit report. Your aim should be to keep all enquiries to a minimum.
Defaults will need to be paid for most loan applications to proceed. Paid defaults can still paint a poor picture, so a good explanation will be needed for the lender to consider.
Review your finances
It is often the small, simple changes that have a great effect on your home loan application. You will need to review all of your financial commitments to see how you can manage them better. It may mean that you will have to get rid of certain expenses such as Foxtel, overseas holidays or your gym membership in order to lighten the financial load.
Reduce debt as much as possible
Credit cards and store cards also have a big impact on your application. Make sure you are meeting repayments on time and also making pay off these cards, reducing the limit or cancelling them a priority. Remember, even if you have a credit card with a $0 balance, the lender will still use the maximum limit when assessing your application.
Having lots of credit cards and personal loans with not a lot of assets to show for them can paint a poor picture of your finances. Make it a priority to pay these off and quickly as possible. Not only will it be easier to remember to pay all your monthly repayments but it will free up cash to save a bigger deposit. Lenders like seeing evidence of a solid savings pattern.
If you are able to demonstrate that you have improved your financial situation, it will help strengthen your application. Lenders understand that there are certain events that can cause financial strife, but you need to be able to show that you are back on track and will be able to handle mortgage repayments.
Don’t apply with multiple lenders
You may think that applying for a home loan with multiple lenders will give you a better chance of securing a home loan, but it will most likely have the opposite effect.
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.
This doesn't mean that you cannot enquire about home loans with different lenders, just be sure that you only hand in a formal application if you intend to go with that lender.
Being open and honest about your financial situation will work to your advantage. Lenders need to be aware of all expenses, income, assets as well as any defaults. Trying to hide information will only hurt your application. If a lender uncovers information that you did not disclose, it could put you in a bad position.
See a specialised lender
There are a number of lenders who are able to provide specialised loans for those with a bad credit history. As you may not fit the mould of a generic home loan, they will find a solution that suits your own unique situation.
A specialised lender deals with unique cases everyday and will more likely be able to understand your situation and provide you with a competitive solution.
At State Custodians, we understand that people experience events in their life that can affect their financial situation. Our Lending Specialists are here to find solutions and advise you on own in-house home loans as well as from a broad range of lenders. Give us a call on 13 72 62 or leave your details here and they will contact you.