Are you planning to take the next leap forward to becoming a homeowner however you are taken aback because of bad credit?
Having a bad credit can indeed hurt your capability to apply for various loans. However, these days, there are sprouting specialist lenders who can offer loans to home buyers with bad credit. These lenders will look beyond your credit history and look further into your capacity to pay. Regardless, it is always advisable to know why you are in a bad credit standing and see if you can still repair some of the damage to improve your standing.
Two Main Considerations When Getting A Home Loan
There are two points that financial institutions consider when applying for a loan – your income and your credit history.
- Income – the higher your income, the better the chance that you can get an approval for a loan.
- Credit history – bad credit history can be damaging. But there are lenders who can look beyond your credit history and discuss with you your options for a home loan. Lenders may even help you repair your credit by recommending a credit repair service.
What should you do to get started? Here are tips to help you apply for a loan despite bad credit.
Five useful tips for first time home buyers with bad credit
1. Understand why you have a bad credit. Get a copy of your credit history.
Before you even sign that application form or talk to another lending institution, seek for a copy of your credit file. Understand why you ended up with a bad standing in the first place.
There are numerous factors that may have to lead your credit standing to bad credit. Below are a few of the factors to look at.
- Unpaid bills
- Late payments
- Declined for a loan
- Applied for credit too often
- Declared bankruptcy
You want to make sure that you know your credit history. All home loan lenders will look closely at this, so you want to discuss negative marks on your file with no qualms.
- If you and your spouse have a bad credit, go the extra mile to improve both of your credit standings.
- If your spouse has a better credit standing than yours, it will greatly help your loan application.
- If you are applying with a spouse who has a bad credit, it’s a good idea to apply as a single applicant. But note that this will greatly reduce your borrowing power.
Know where to access your credit report.
2. Settle any outstanding debts and pay off existing debts
Lenders will ask you what steps you have taken to repair your credit standing. Naturally, you will want to pay outstanding debts. Contact companies listed with late payments and see if they can remove negative report. Some companies can do that for you especially if you have built a good rapport with the company.
Payoff existing debts. Lenders will look into your current credit accounts like your credit card bills and personal loans. It is important that you don’t have any existing loans when applying for a home loan. Payoff all existing debts for a better chance of approval.
Consider a credit repair service. A credit repair specialist can help you in a number of ways. They can review your credit report and help remove negative listings in your credit history if those negative listings are not adherent to laws. This can greatly improve your credit standing.
3. Choose a lender who offers home loans despite bad credit
There are specialized lenders in Australia who offer bad credit home loans. These lenders will look into your file and understand why you ended up in bad credit. Bad credit standing is, in many cases, reflective of many factors. It could be a result of lifestyle change or unwanted circumstances such as sickness or divorce. Be honest when these lenders ask for an explanation.
They will compare your credit standing against your income. It helps to know that you have a good and stable source of income. Note that a higher income can sometimes override bad credit depending on how the lender views it.
4. Avoid applying for too many loans in a little space of time
Your credit report will include all previous inquiries for past loan applications. Take careful steps when inquiring about home loans especially when you already have a bad credit standing in your record. Too many inquiries in a little space of time can lead to raised red flags to lenders.
5. Consider Lenders with their own Lender’s Mortgage Insurance (LMI) before applying
There are only two major providers for LMI in Australia – Genworth, and QBE. These major providers are very strict when it comes to evaluating loans which in many cases leads to rejected loans. Specialized lenders have their own LMI alternative so that you have better chances of getting an approval.