A bad credit home loan is a type of mortgage that is offered from a non-conforming or specialist lender that can consider all situations, in particular for those with black marks on your credit file.
It is designed to separate and help the ‘outside of the box’ applications from regular people who do not meet the bank’s guidelines.
Part IX agreement
Who can qualify for a home loan?
Bad credit home loans are generally suited for people who have had unfortunate events such as a divorce, loss of job, injury or business failure which has resulted in black marks on their credit file.
Lenders are dubious of people who did not pay for their defaults or those who keep having ongoing credit problems. Below are a list of the basic qualifying criteria:
- 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 are able to 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 with a non-conforming lender. Many lenders require you to pay the defaults before the loan is approved.
- Judgments or court writs: If you have any judgments or court writs then you can borrow 90% of the property value with a non-conforming lender.
- Part IX agreement: Please refer to our Part IX agreement page for more information.
- Bankruptcy: Please refer to our bankruptcy mortgages page for more information.
Please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers will be able to determine whether or not you qualify for a home loan.
What is considered to be "bad credit"?
There are many different types of 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 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 that they have had problems with in the past.
- Unpaid bills or tax: Outstanding bills such as council rates or late 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.
- Company in financial trouble: If you are the director of a company that is in financial trouble, receivership or liquidation then this can affect your personal credit history.
- 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.
How do non-conforming lenders work?
Yes, we hold an Australian Credit License (ACL) as required under the National Consumer Credit Protection Act .
Non-conforming 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 of your loan, the higher the rate of interest the lender will charge you.
They will assess your home loan application on a case by case basis and listen to your story as to what went wrong and why you need debt relief. These lenders can often rapidly approve loans to meet deadlines from the creditors.
- Generally if you are borrowing below 80% of the property value then you can get a cheaper interest rate.
- For those of you who are looking to borrow over 80% or if you have had severely impaired credit histories then the rate can be higher.
One of our specialist mortgage brokers can assess your situation and determine whether you can qualify with a non-conforming lender. Please enquire online or call us on 1300 889 743.
How can I get finance with an equity loan?
Banks see equity releases as a problem and for this reason they have cash out restrictions. Lenders know that equity releases are more risky than a normal loan to purchase a home.
Please enquire online to find out whether you are in the position to get an equity loan.
Can I apply for a home loan with a bad credit rating?
Traditional lenders such as the major banks are unlikely to consider your application for a home loan even if you have a good reason behind the blemishes on your credit file.
However, we use a unique approach to find the most suitable lender for you that can consider your situation when assessing your application.
Simply read more on our credit rating page for more information.
Can I get a low doc loan with bad credit?
Bad credit lenders are flexible with self employed borrowers who need a low doc 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 loans with an unpaid default, mortgage arrears, judgment and even discharged bankruptcy. Usually, you will sign an income declaration or provide an accountant’s 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 non-conforming lender at a higher interest rate.
Please call us on 1300 889 734 or enquire online to find out if you qualify for a low doc home loan.
Who are the non-conforming lenders?
We have access to many non-conforming lenders that can help borrowers get approval for a home loan despite any black marks on their credit file.
The non-conforming lenders that we deal with include:
- Bluestone Mortgages
- Liberty Financial
- Pepper Home Loans
- Widebay Australia
- Adelaide Bank
- La Trobe Financial
- Red Z
- MKM Capital
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.
Did you know that 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 on?
The cost of selling then buying is often more than 8% of the property value!
We always set up 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. Why?
- The idea is 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.
- This stops people being caught out if their personal situation changes.
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.
What are the benefits of debt consolidation?
By rolling all of your debts into one easy repayment each month it will be much easier to manage your repayments and it will reduce your overall repayments.
This will prevent further damage to your credit history and you can stop your bank from repossessing your home. Now you have a way out instead of fighting to keep your head above water.
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.
What if I have a mortgage in arrears?
Mortgage in arrears is if you have not made the required payments on your home loan. This includes missed payments and late or overdue payments.
The major banks and prime lenders will not approve your loan if you are in this situation, especially if you have only had your home loan during the last 6 to 12 months.
You will need a specialist mortgage broker to find you a lender that can consider your situation. To find out more simply read our page on mortgage in arrears.
Can I get out of bankruptcy before being discharged?
Yes! You can get out of bankruptcy before being discharged if you get the bankruptcy annulled.
An annulment cancels the bankruptcy entirely, which removes you from being bankrupt. To find out more, read our page on bankruptcy.
What is the advantage of a Part 9 (IX) debt agreement?
A Part 9 (IX) debt agreement is an alternative to going bankrupt. Debt agreements are more flexible and can include a number of options such as:
- Agreeing with your creditor to pay less than the full amount of the debt that you owe.
- A negotiated system of periodic payments out of your income which is set at a level that you can afford.
- A transfer of some of your property from you to your creditor in full or part payment of your debt.
- Arranging a moratorium which is a temporary suspension on paying your debt.
With the flexibility of the part 9 debt agreement you are able to apply for a loan in which the banks will not consider you as being bankrupt.
How can a part 10 (X) debt agreement help?
A Part 10 (X) debt agreement is a process in which a debtor may make a proposal to their creditor for consideration and a formal vote.
It is a simple method for both parties to come to a mutually agreed on compromise in a relatively simple way without reference to the court.
Can I apply for private finance with a bad credit history?
If you have equity in a property and need to get quick cash then applying for private finance can be an option.
Please enquire online to speak to one of our specialist mortgage brokers who can point you to the right direction if you have a bad credit history and would like to deal with a private lender to get your application for a mortgage approved.
Am I eligible to refinance my bad credit loan?
Not everybody is eligible to refinance to a bank loan, in these situations we usually refinance to a cheaper specialist loan before refinancing to a major lender because they tend to be very conservative when it comes to lending to borrowers who have a bad credit history.
Please read our refinance bad credit page for more information.
You can even enquire online or call us on 1300 889 743 to talk to one of our specialist mortgage brokers right away.