Bad Credit Home Loans also known as non-conforming loans, credit impaired loans or specialist loans, are mortgage loans for borrowers who may have unique financial circumstances which mean they are unlikely to meet or conform to the rules of traditional home loan lenders.
Bad Credit Home Loans are generally for borrowers who may have:
- An adverse credit history
- Existing home loan arrears
- Credit card or personal loan arrears or defaults
- Too many debts and are finding it difficult to consolidate
- Been declined by another lender
What is considered to be bad credit?
There are many different types of bad or impaired credit. The main types are:
- Mortgage arrears: Missed payments on your home loan. The more the number of missed payments you have had in the last 6 months then the more wary lenders will be. Generally, banks will not refinance your home loan if you have missed just one repayment!
- Bad credit history: Adverse listings such as defaults, bankruptcy, judgments, court writs or too many credit enquiries on your Veda Advantage credit file can make your application doubtful.
- Lender credit history: Your past credit history with the lender you are applying for. Lenders have a very long-term memory for the customers they have had problems with in the past.
- Unpaid bills or tax: Outstanding bills such as council rates, late tax bills or arrangements with the ATO to pay overdue tax bills, are a type of bad credit history that may not initially show up on your credit file but may be visible on the supporting documents you need to provide.
- Over committed: If you have too many debts for your income or your total assets are less than your total liabilities then the major banks may assess you as being insolvent or beyond help.
I have bad credit but exactly what does it mean?
Lenders are wary of those who do not pay their defaults or those who keep having ongoing credit problems. Your bad credit history will place you in one or more of the following categories:
- Small paid default: If you have a small default for less than $500 and it has been paid more than six months ago then we can help you borrow up to 90% and in some cases 95% LVR (of the property value).
- More than one small paid default: If you have less than $1,000 in paid defaults from financial institutions (e.g. banks) and less than $500 in paid defaults from non-financial institutions (e.g. phone companies) then you can borrow up to 85% or possibly 90% of the property value.
- Moderate paid defaults: If you have up to $3,000 in paid defaults we can help you borrow up to 80% of the property value with a prime lender, up to 90% of the property value with a specialist lender or up to 100% of the property value if you have a security guarantee from your parents.
- Large paid defaults: Larger paid defaults from $3,000 to $500,000 can be considered on a case by case basis if you have a very good explanation which is backed up with strong evidence. We can lend up to 90% of the property value with a specialist lender.
- Unpaid defaults: If you have any unpaid defaults then you can only borrow 90% of the property value, this is with a specialist lender. You will be required to pay the defaults before the loan is approved for purchases or from the loan for refinances.
- Judgements / court writs: If you have any judgements / court writs then you can borrow 90% of the property value, this is again, with a specialist lender.
- Part IX agreement: You can refinance your current mortgage to pay out your agreement. You must be in the agreement for a minimum of 12 months and your repayments for the agreement & existing home loan must be perfect.
- Bankruptcy: You must be discharged, then you can borrow 95% of the property value, this is again, with a specialist lender.
Bad credit home loans are generally for people who have had unfortunate events such as a divorce, loss of job, injury or business failure which has resulted in adverse entries on their credit file, in most cases there is a compelling reason as to why you have defaulted.
Ocean Home Loans mortgage brokers are experts in bad credit home loans, speak to us today on 07 5593 1420 to find out how Ocean Home Loans mortgage brokers can get you approved for a bad credit home loan, or enquire online and we will contact you as soon as possible to discuss your options.
How do specialist lenders work?
Specialist lenders are far more flexible than the major banks. The interest rates that are offered reflect the risk to the lender. Therefore, the higher the risk that your loan presents to the lender then the higher the interest rate you will be charged.
Specialist lenders will assess your bad credit home loan application on a case by case basis and listen to your explanation as to how you arrived in this situation and why you need debt relief. These lenders can often rapidly approve bad credit home loans to meet deadlines from your creditors.
- Generally if you are borrowing below 80% of the property value then you can get a cheaper interest rate
- For those looking to borrow over 80% or have had severely impaired credit histories, then the rate will be higher
Are there Low Doc Bad Credit Home Loans?
bad credit home loan lenders are flexible with self-employed borrowers who need a Low Doc Home Loan because they cannot prove their income using financials and tax returns. In some cases, they can help start-up businesses for people who have an ABN that has been active or GST registered for less than 2 years.
They can accept Low Doc Home Loans with an unpaid default, mortgage arrears, judgement and even discharged bankruptcy. Usually, you will sign an income declaration or provide an accountants letter to prove your income.
Note: You can usually only borrow up to 60% of the property value. In stronger cases, 80% may be considered. This is likely with a specialist lender at a higher interest rate.
Ocean Home Loans mortgage brokers are experts in bad credit home loans, speak to us today on 07 5593 1420 to find out how Ocean Home Loans mortgage brokers can get your approved for a bad credit home loan, or enquire online and we will contact you as soon as possible to discuss your options.
What are the benefits of debt consolidation?
By rolling all of your debts into one easy repayment each month it will be easier to manage your repayments and it will reduce your overall repayments.
What is a possible drawback of debt consolidation?
A possible drawback of debt consolidation is that you may have to pay a higher interest rate on your home loan, however overall your repayments will usually be lower.
If you do get into financial trouble again in the future then a specialist lender would normally take legal action against you faster than a bank would. We strongly recommend that you do all you can to make your mortgage repayments on time, every time.
Solution focused lending
The idea of home loans for people with bad credit is to be a short to medium term fix, not a long-term solution such as a second mortgage.
It is often much cheaper to pay a higher interest rate for a few years than it is to sell your home and then buy a new one later. The cost of selling then buying is often more than 8% of the property value.
We always set up Bad Credit Home Loans with the intent of refinancing back to a prime lender in around 2 to 3 years’ time, when your credit history is clear again, to help you make a fresh start and allow you to keep your home. You can have a 25 or 30 year loan term that way you are never forced to refinance in a particular time frame, which prevents people from being caught out if their personal situation changes.
Ocean Home Loans mortgage brokers strongly believe in the principles of responsible lending, our aim is to provide you with the solution to enable you to overcome a distressing financial situation if possible and place you on the path to financial security.
You will need to repay your bad debts; clean up your credit file and then once you have a proven track record of repayments on your mortgage with no arrears you can refinance to a better interest rate.
Contact Ocean Home Loans today on 07 5593 1420 to find out how Ocean Home Loans mortgage brokers can help your financial recovery, or enquire online and we will contact you as soon as possible to discuss your options for bad credit home loans.
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