A bad credit rating could make it tough to get a home loan. However, it’s now not simply the ones who war to manipulate their finances that can emerge as with bad credit. Plenty of circumstances could have an effect on your credit score records.
If you’re on this situation, there are things you may do to enhance your possibilities of getting a home loan.
Five Hints to Fix Your Bad Credit Rating
1. Get your credit report under control
The first thing for a client to do if they have bad credit rating is get a copy of their credit report – to make sure they are aware of all the problem records they might have against their name.
Knowing exactly what’s in the report means they can then make a plan to sort things out. Debts that are overdue will stay on a file for five years, but the good news is that a credit file can be updated if the balance of a debt is paid out. If a client does have credit issues then potential lenders will want to know what actions they’ve taken to address those problems, so it’s best to get any defaults paid off so the potential lender can see good progress.
Any information on a file is not accurate, make an immediate request to have it corrected so it doesn’t continue to affect home-buying plans. If you think there’s been an error speak to the credit reporting agency and the credit provider involved to get it sorted out.
2. Shop around more
If a credit file got a no with the first lender tried, there are others that can be approached; each lender has slightly different sets of boxes to tick. So if one didn’t look on a situation favourably, don’t give up – another might well take a different view.
EXTRA HOT TIP: Shopping around is a smart thing to do, but it’s important to remember that multiple credit applications in a short time frame can be bad for a credit score. So, it’s best to be cautious and only apply for one type of credit at a time. Working with someone like us will help avoid these traps.
3. Explore the world of alternative lending if you have really BAD credit rating.
If a credit history is the only thing holding someone back, they might be able to get a mortgage from a non-bank lender with a more flexible lending product. Mortgage with bad credit is still possible. The banks tend to have very fixed home loan assessment rules. Once upon a time they were pretty much the only option. Thankfully the world has moved on and now alternative lenders like Pepper Money offer a different approach. They can consider an application on its individual merits and look at a wide range of things, not a narrow set. You can also search help from a mortgage broker.
4. Make sure they are in a situation to afford the repayments
A non-bank lender is still responsible with their lending practices and they’ll want to be sure a person is in a situation to comfortably manage the debt. Make sure they are genuinely comfortable that the proposed repayments will not be to big a stretch. No one wants to put a person in hardship.
5. Look at alternatives to Lenders Mortgage Insurance (LMI)
If someone is trying to buy a home with a deposit of less than 20 per cent, they’re likely to find they will need to pay a fee for something called Lenders Mortgage Insurance (LMI). It covers the lender if the person were to miss payments down the line. LMI providers are a separate business and have their own lending rules – so they will consider any application as carefully as the main lender. They may turn down an application because of credit history or income source, even when a lender has given an approval.
A different way of doing this is rather than using a third-party mortgage insurer, some lenders – like Pepper Money – can offer a Lender Protection Fee (LPF), which gives them the flexibility to assess a loan application without having to get outside approval from LMI providers.
Need Further Help on Your Bad Credit Rating?
If you’d like more information, talk to us today about how we may be able to put your clients in touch with a lender that can help if the major banks say ‘no’ to their loan application.
Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 1300 722 494.