When your credit history is less than stellar it can be difficult to find in roads with traditional lenders. There is often a misconception that people with black marks on their credit report aren’t able to buy a home, but this simply isn’t true.
There are many options if you have had a rough time with debt or poor credit in the past. Everyone has unique circumstances, but here are some of the ways that a bad credit loan can help you.
Normally, traditional lenders look for borrowers who have a clean credit history. Because these borrowers can obtain lenders mortgage insurance (LMI), this reduces the level of risk exposure. However, you are unlikely to obtain LMI when you have bad credit. But don’t fret – you can still apply for a home loan. It just takes some careful planning and some help from a specialist lender.
How do I get a bad credit home loan?
You normally have to put down minimum 10 per cent deposit on a property. This can stretch to 20 per cent in some cases, depending on the lender’s specific requirements.
Each bad credit borrower has a unique situation. Lenders are generally risk adverse institutions, but there are a few things you can do to improve your chances to obtaining a bad credit home. Your credit history is the most important part of the application process.
Remember- the lower the loan to value ratio (LVR), the less risk you pose to the lender. Ensure that you are in the greatest financial position to obtain a loan. This means securing cash flow and checking over your credit report. Make sure there are no serious issues. Your individual report will reveal any credit related activity in the previous five years – this will include any missed payments, late bills or defaults.
Paying your bills will not clean your report. However, your lender will be more likely to approve the loan if you can provide evidence of improvement – that is, you are making an effort to pay off past debts. Make sure you pay off credit card balances and any outstanding loan repayments.
