How To Get A Home Loan With Bad Credit
So you’ve had a hick-up and need to know how to get a home loan with bad credit.
Having bad credit does not mean you are a bad person, but it may mean you have gone through a bad spell in a relationship, a health issue, some traumatic experience, a problem with business or just plain old financial pressures. We know from experience that there are times in our lives where it is easy to avoid or ignore our finances and especially when we don’t know what to do or how to cope.
Of course, in hindsight we look back and know we could have done better, but you cannot turn the clock back – we can only deal now with the past and move on.
When you want to buy a new home then having bad credit can cause some real issues.
How To Deal With Bad Credit
Banks will usually view any credit issues or bad credit as a problem!
This does not necessarily mean they will not approve a home loan for you, but they deem you are a higher risk than someone without any past credit problems. They will therefore want to understand what happened to bring about the bad credit and also to know that this is not a pattern of behavior.
We know that no matter how hard we try to do our best, sometimes life just takes us by surprise. Business failure, sickness, separation, accidents, the unforeseen loss of a partner can all result in financial mishaps, impact your income and put extra pressure on you to meet bills, credit cards and mortgage repayments.
Check Your Credit Rating
This is almost always one of the first things we do when you are going to be applying for a home loan.
Every time you apply for a loan (a credit card, car loan or a mortgage for a house) the bank or non-bank lender will look at your credit history. Every time they do they leave a record of what, and how much, you are applying for.
If you have failed to pay a supplier (such as a mobile phone or electricity company, gym membership or a loan) they can lodge a default on your credit report which then shows up for anyone doing a credit check after them and even after it’s been paid the default remains on your credit rating for up to 5 years.
If you apply for a large amount of credit like a home loan and this type of issue is discovered, the banks will most likely decide not to lend you the money – they will decline your loan application.
As mortgage brokers we like to find out about any issues and ensure that we explain them to any prospective lenders.
Some Banks Will Loan To People With Bad Credit
When you want a home loan but have bad credit then your application is not going to be quite as easy. In fact many banks will just say “no” straight away unless there is a very good reason for the bad credit.
Remember that there are a range of lenders who all compete for business and they each have slightly different criteria.
The Co-Operative Bank have Fresh Start loans as an option which is suited to people that have had some credit issues. They charge a higher interest rate for a period with the ability for the interest rate to reduce
Resimac Home Loans and Avanti Finance both offer good non-bank options for long-term mortgages with people that have had credit issues. Many of the smaller defaults or defaults over 3-years old are not counted as negatives. Liberty Financial is another option although they are a bit more expensive and have a deferred establishment fee of $2,495 that is charged if the loan is paid off or refinanced within 3-years.
Basecorp Finance and LendMe (which is a peer to peer lender) offer shorter-term finance options which can suit many of the people that have had issues with credit in the past, but want to get some finance until their credit looks better and they can get a home loan with a bank again.
Sometimes if there are unpaid debts then a finance company might be the best option. A short-term 3-months or 6-months is often a good idea as this allows time to pay off any unpaid debts and to demonstrate a short payment history which then means you can refinance to another lender and potentially get better rates.
Buying a property is a long-term commitment and therefore generally the finance is too.
The one good thing about any defaults listed on your credit is that most will vanish from your report after 5-years. This means that even if you have to pay a little extra today for a bad credit home loan, you will not be stuck on higher rates forever. The key thing is to work with a mortgage broker who understands the options and selects the best option for the long-term and does not get you stuck locked into higher interest rates for too long.
With house prices increasing in most of New Zealand and in particular places like Auckland, Whangarei, Hamilton, Tauranga and the Queensland Lakes it is more important to get into the property market while you can.
Try to focus on the overall cost rather than the first years costs which will typically include a higher than bank interest rate and most likely an application and adviser service fee too.
Work With A Specialist Mortgage Broker Like Stuart Wills
You will find that Stuart Wills is a non-judgmental mortgage broker, and a specialist that can get you a home loan regardless of your past.
Unlike many bank staff he will admit to having been through tough times himself in the past.
Although he is one of the few New Zealand mortgage brokers that have never worked for a bank, he understands how the banks tend to treat people who have had some credit issues regardless of the reasons.
Being a member of The Mortgage Supply Company also means having access to most of the lenders that provide bad credit loans in New Zealand.
Source: North West Mortgages