Have you missed a payment on a bill, credit card, your mortgage or any other type of financial debt in the past? The chances are it may be noted on your credit file as a default otherwise known as bad credit. Many people who think about people having bad credit to their name perceive these individuals to have done something wrong intentionally which in turn put them in the category of bad people. Most of the time this isn’t related to being irresponsible or being a bad person as it could be something as simple as moving house and not getting the final electricity bill, and due to everything going on with the move the person forgets to chase it up.
If you have previous bad credit history hanging around on your credit file, it is not the end of the world. If you have gone to your bank directly to talk about a home mortgage only for them to say they are unable to help due to you having bad credit history, or you know that you have bad credit and are unsure of your options this is where talking to an experienced finance broker will be your best option for finding out what exactly you have the ability to achieve. There is a broad number of lenders nowadays who actually specialise in providing options where the mainstream banks simply will not.
Please find below a list of what is considered as hits on your file by lenders, and can stop you from qualifying for a home loan:
- Mortgage arrears:Missed payments on your home loan.
- Bad credit history:Defaults, bankruptcy, too many finance enquiries.
- Lender credit history:Any misconduct in the past with the lender you are applying for.
- Unpaid bills or tax:Outstanding bills such as rates and utilities or tax related bills.
- Over committed:If you have outgoing debts outweighing your total income, lenders may not be able to assist.
There are options out there when it comes to bad credit scenarios, as there actually non-conforming lenders who are able to offer products around this as their guidelines are based outside the box so to say so and have a more relaxed approach compared to a mainstream lender who otherwise doesn’t have an option to put on the table. It is best to talk to a finance broker about your options around this as any mortgage broker who has the experience will be able to find the most suitable lender product for you without further tarnishing your credit file.
The types of bad credit home loans on offer do vary respective of each individual situation. There are two types on defaults lenders will look at and take into consideration; paid and unpaid defaults. These types of bad credit home loans are offered to borrowers who have defaults on their credit file.
- Paid defaults: Defaults that you had, but have been paid in full.
- Unpaid defaults: Defaults that you have and haven’t yet paid in full.
When dealing with a non-conforming lender, there is a great chance they will be able to help you to achieve your goals but this will come with a cost. The interest rate you will be offered will be assessed on the level of risk you propose to the lender so in turn the higher the risk the higher the rate and will also be dependent on the proposed LVR of the home loan. You will be required to pay a risk fee that is capitalised onto the loan along with an application fee, these fees will be calculated by each lender differently.
The way the specific lenders and their products are best utilised is to get you in the door progressing forward and to help you get your credit situation sorted and into a better position for you. After say 2 years your mortgage broker will endeavour to look over your situation and providing you have been doing all the correct things to help better your overall situation there may be the ability to restructure to a mainstream lender with sharper rates and more suitable product offering.
If you have any queries or a question regarding specific information around bad credit and your options, click here to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.