As New Zealand mortgage brokers we often get asked about buying a home with bad credit.
This week we had the following enquiry from our website;
We are a couple who’s trying to get in to the property ladder as soon as we can. We have a stable income now with a saving of 80k including KiwiSaver. However since we have had credit issues in the past (5 defaults) around 2014-2015 we are unable to secure our home loan through standard banks. Our combined household income is $175K and looking forward to buy a property in Auckland under $750k with 10% deposit… is it feasible with our current credit scores and incomes?
The Bank Said NO
From reading the enquiry, this couple had approached their own bank first and had been told NO (declined) so they decided to contact a mortgage broker for bank alternatives.
They searched for a mortgage broker that could help them with buying a home with bad credit and found our finance blog.
On the blog we have written about some examples of loans that we have done like;
How To Buy A Home With Bad Credit
We know that some mortgage brokers will not know how to get home loans for people with bad credit and some may even read this to learn how. The banks are not good at providing finance for people with bad credit, but there are a few non-bank lenders that have an appetite for this type of lending.
The lenders will always look at three factors to assess the risk when considering home loans for people with bad credit;
- The deposit or equity – the lenders will typically restrict the lending to 80% as a 1st mortgage so in a case like this we would normally have a combination of a 1st mortgage for 80% and 2nd mortgage for the 10% both with non-bank lenders.
- The credit check – we would do a credit check to see what the amounts of the defaults are and if they are paid. The non-bank lenders scale the interest rates on the deemed risk and the credit report is the basis for determining this. They will often put less emphasis on small defaults especially if they have been paid, but larger defaults can affect the interest rates. We typically see interest rates of somewhere between 7.25% – 8.25% for the first mortgage and higher for the 2nd mortgage, generally we suggest that you budget on an overall average interest rate of about 8.80%.
- The income – we need to be able to show the lenders that you can afford the loans now but always also check if the income would meet bank criteria so there is a pathway back to bank lending once the credit check is all clear. In this case the couple have a good income but we need to get a full understanding of the income and especially if these people are self-employed.
Refinance To The Banks
When we help people with buying a house with bad credit we also like to think that we can make sure that they have a clear pathway for getting back to bank mortgages with lower interest rates as soon as possible. Somethings this may be just months away, but often like this case it might be 2-years or more. It is critical that a mortgage broker gets a good understanding of the time-frames so they can provide the most appropriate home loan as too often we see short-term loans used when it is obvious that a longer term solution is required.
The key thing is to work with an experienced mortgage broker like Stuart Wills that knows how buying a home with bad credit can work, but also knows how to get you back to standard bank lending so you get the lower interest rates they can offer.