If a bad credit rating is making it hard for you to get a home loan, it doesn’t mean you need to shelve your home ownership dreams. Credit history can be affected by several factors including missing payments and late payments. Take a look at these five tips to help you get on top of the credit issues that could be impacting your home loan application.
1. Get your credit report under control
The first step is knowing exactly what’s in your credit report so you can plan to sort things out. You can request a copy of your credit report by contacting a credit reporting agency. While any overdue debts stay on your credit file for five years, if you pay out the balance of your debt, your credit file can be updated. It’s vital you do as much as possible to clear any outstanding debt as lenders will want to see what actions you’ve taken to address any credit issues.
If the information in your file is not accurate, you can request to have it corrected by contacting the credit reporting agency and the credit provider involved.
2. Shop around
Each lender has its own particular criteria for approving home loan applications so it’s worthwhile shopping around if at first you get a no. Remember though, that too many applications in a short timeframe can negatively impact your credit report if you’re being turned down for each application.
Working with a mortgage broker will help you avoid adversely affecting your credit report as we work with a panel of lenders who deal specifically in lending to borrowers with credit issues and can match you up with the right one so you avoid being declined.
3. Consider a non-bank lender
Banks have strict home loan assessment rules which may be holding you back from getting a mortgage with credit issues. Alternative lending solutions from non-bank lenders may offer a more flexible lending product that could better suit your circumstances.
These lenders tend to take an alternative approach to mortgage applications, considering each application on its merits and looking at a much wider set of lending criteria, which means they can often provide a financial solution when the banks turn you down.
4. Ensure you can afford the repayments
Check you are in a position to comfortably manage your mortgage repayments without defaulting. You can use an online mortgage repayment calculator like this one to determine how much you’ll be required to repay each fortnight or month. Then draft a budget factoring in all of your monthly incomings and outgoings. Be sure to include a bit of a buffer for any interest rate increases so that your repayments are not too big a stretch for you.
5. Look at alternatives to Lenders Mortgage Insurance (LMI)
One of the biggest hurdles for home buyers with less than a 20 per cent deposit is Lenders Mortgage Insurance (LMI). This is the fee charged by lenders to cover themselves should you default on your loan repayments later on.
LMI providers are a separate business and have their own lending rules – so they’ll consider any application as carefully as the main lender. They may turn down an LMI application because of credit history or income source, even when a lender has given an approval.
To get around this, rather than using a third-party mortgage insurer, some lenders can offer a Lender Protection Fee (LPF) which gives them the flexibility to assess your loan without having to get outside approval from LMI providers.
Getting a mortgage with credit issues needn’t be impossible. If you’d like more information about how Mortgage Express can help you secure a home loan if you have credit issues, get in touch with us today and we’ll help match you up with a lender who may be able to help even if the major banks have declined your application.
Credit: Pepper Mortgages Australia
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA)