Bad Credit Finance for Home Buyers

If you’ve been rejected for a home loan, it could be that you have bad credit. You may not even know this is the case until you apply for a loan, and it could be that the bank views you as a bad credit option because you’ve recently started a new job. Perhaps you’ve got a history of making late payments on a previous loan, credit cards, or energy bills. This doesn’t of course, mean that you have defaulted, simply that you may have forgotten to pay on time.

Whatever the reasons for a bad credit rating, there are ways to access bad credit finance for home buyers.

You are not alone

The first thing to point out is that you are not alone. The banks and other lenders have a term for borrowers with bad credit records, and those that don’t fit into their description of the ideal borrower. You are a non-conforming borrower, and approximately one in four of all Australian home loan borrowers fall into this category.

Most lenders, and in particular the big banks, take a hard line with non-conforming borrowers. They view them as high risk. Even the smallest blot on a credit rating will have the mainstream lenders running for cover. What you need is specially designed bad credit finance for home buyers that circumvents the lending criteria used by the big banks who calculate your ability to pay based upon your income and previous debt maintenance records.

Non-conforming loans

A non-conforming loan is a mortgage which is extended to people who do not qualify for home loans because of their non-conforming status. There are various reasons for bad credit status, including:

  • Bad credit history
  • Missed or late payments
  • Recently started a new job
  • Self-employment
  • New Australian resident without a credit history

A mortgage broker will be able to access your credit rating and highlight if there are any potential issues that will stop mainstream lenders from lending to you. You’ll be able to address these early, and if there are any errors request their removal.

The disadvantages of non-conforming loans

While a non-conforming home loan will enable you to finance the purchase of your home, there are also some disadvantages. The biggest of these is the requirement for a larger deposit. Most lenders will only lend a maximum of 80% of the property value, so a sizeable deposit will be needed.

Also, because of the higher perceived risk of making a non-conforming loan, the interest rate charged will be higher than on standard loans. There will also be lender’s mortgage insurance to pay, depending on the size of the loan in relation to the property value.

However, many other features of standard loans will be available such as variable or fixed interest rates and the ability to make early repayments.

It pays to shop around and find the best deal. A mortgage broker, with experience in the non-conforming market, will have access to a number of lenders and be able to search for the best deals with the conditions and features to suit your particular situation. They will be able to offer support and advice throughout the application process, saving time, money, and, just as importantly, reducing the stress of finding the best deal in the market for bad credit finance for home buyers.

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