Applying for a bad credit loan: How will your application be assessed?

If you find yourself considering bad credit home loans, it could help to know what lenders will be assessing you on when they’re reviewing your application. Based on the individual merit of each person, bad credit mortgages and the borrowing requirements could be dramatically different between people.

For example, the more severe your credit history, the higher the likelihood of having the loan held to a larger interest rate in order to protect the lender from the risks inherent with loans of this type. Here are some of the criteria reviewed when you apply for a bad credit home loan.

Your current employment situation

Naturally, lenders are looking for applicants who can demonstrate a strong ability to make regular home loan repayments in full and on time. Therefore, taking your current income into account is important to ensure it’s possible for you to make these payments.

However, if you’re in between jobs at the moment or don’t have any savings to fall back on, it could be difficult to successfully apply for a mortgage. Having proof of work and income automatically makes you a lower risk for lending than those without.

The age of your credit defaults

This highlights how recently you had a credit failing. Having none is the ideal situation to be in, but if you have had run ins with bad credit, the older the indiscretion, the better. If they are more recent, this illustrates to the lender that you could still be a fairly large risk to lend to.

The loan to value ratio (LVR)

This figure highlights how much the lender will actually have to lend towards your property goals. The lower the LVR of your application, the less the lender has to front themselves – reducing the risk involved and potentially enticing them to approve your bed credit mortgage.