Bad Credit – Can I get a Mortgage?
Today, around one in four Australians will have their mortgage application rejected by traditional lenders, including the main banks, building societies and credit unions.
This rejection rate has been fairly consistent over the years, reflecting the rigid lending requirements of most mainstream lenders.
One major risk factor that many mainstream lenders take into consideration when assessing a mortgage application has been the credit rating or credit history of the loan applicant.
Often, when a mainstream lender or bank conducts a credit check on a mortgage applicant(s), if any adverse findings are identified, then the application is often declined without further reference to any other mitigating factors.
These factors can include:
- The amount of proposed borrowings relative to the value of the security offered
- The reasons presented for all defaults, writs or arrears, both past and present
- The capacity of the borrower to service (pay for) the mortgage loan
- The degree and extent of credit default
Aside from borrowers who purposely default on their loans, (of which there are relatively few instances) most mortgage applicants can provide rational reasons for past credit defaults, which, more often than not, are caused by ‘one off’ events such as:
- Temporary unemployment
- Temporary illness
- Business failure
- Marital breakdown
- Financial over commitment
In recent times, a number of ‘Non Bank’ lenders have developed mortgage products that take into consideration these ‘one off’ events and allow potential borrowers the scope to secure mortgage finance.
Assent Mortgage Finance is a specialist mortgage finance intermediary that can assist borrowers who have a ‘checkered’ credit history, in an effort to obtain mortgage finance on competitive terms and conditions.
For many Australians, who have a poor credit history, there is often a belief that there are no viable mortgage alternatives available to them. This couldn’t be further from the truth.
For those who want to know more about getting a mortgage with a history of bad credit, we have provided valuable information for clients with some level of poor credit history but who also require mortgage finance to purchase a property or to refinance their existing mortgage.
Of course, the single most important factor behind any successful application for mortgage finance, is whether the borrower understands the requirements of any ‘alternative’ mortgage product provider and the capability of a competent intermediary to assist them to select the most appropriate specialist mortgage.
Getting it right the first time will always position your ‘Bad Credit’ mortgage application in the best light and with the greatest opportunity to get the right outcome.
Here are our top 10 'best' tips for any mortgage applicant (Australia) to ensure they get the result they want. That is, "Approved" not "Declined".
Tip Number 1
Keep paying your current mortgage / loans.
On more occasions than we would like, mortgage applicants who have received a conditional mortgage loan approval believe that they have been saved from their immediate loan commitments.
Often, applicants mistakenly believe, that as their new mortgage loan will eventually consolidate their debts, they may as well wait for the process to finalise, and in the meantime, fail to pay their existing commitments.
Common sense should always prevail in these circumstances, but alas, a few people believe that they are ‘off the hook’ so to speak and decide to ‘stop paying’.
If you do have bad credit and/or are in arrears with your creditors, the simple tip here is,
Don’t stop paying, even if you can only make part payments to your creditors. Let them know what you are doing and keep your mortgage adviser aware of your circumstances at all times.
There have been circumstances where applicants have stopped paying their home loan and creditors only to find out that their new mortgage loan is insufficient to payout all debts, including the mortgage.
Don’t let this happen to you!
Tip Number 2
Find and copy all your bank statements, evidence of income and correspondence with lenders for all current and past loan commitments.
If you are applying for a new mortgage loan or wish to refinance or consolidate all your loan commitments, you should get as much information together as you possibly can.
As a potential borrower with a poor credit history, being scant on documentary evidence of income, bank statements and /or correspondence with all creditors etc, will only delay the loan process.
If you have relevant documentary evidence to support your application, get it, copy it and make sure your mortgage adviser is aware of it.
Tip Number 3
Don’t hide or purposely withhold any relevant information.
If you purposely hide any relevant information from your mortgage adviser or any potential lender during the mortgage application process, you will be found out. Simple as that!
There are numerous checks that are made by lenders, (checks that you have authorised) and if you believe that you can hide any part of a previous or current ‘bad credit’ experience, you are really, only fooling yourself.
Non bank lenders (and any other lender for that matter) take a dim view of applicants who don’t divulge all information that may be relevant to the decision making (acceptance) process.
If you purposely withhold information that a lender may rely on and it is identified later on, you may as well kiss your application for mortgage finance goodbye there and then!
Not only will you increase your chances of not getting your mortgage loan application approved, but you will have signed a declaration falsely and may face more serious consequences for doing so.
Of course, if you are either unaware of a default or you have simply forgotten a particular instance of a credit default, this may be overlooked.
However, it is always wiser to disclose everything relevant to your mortgage loan application.
By doing so, your chances of a successful outcome are substantially increased.
To cover yourself, ask your mortgage broker about the process required to get a copy of your credit file. This will ensure no inadvertent mistakes are made with full disclosure.
Tip Number 4
Get professional assistance from a specialist in the 'non conforming' loans market.
There are literally thousands of mortgage brokers, advisers, finance brokers, accountants, financial planners etc in Australia today offering their ‘professional’ services.
If you are looking for tax advice, you would probably seek the services of a tax accountant. If you’re seeking advice in the area of managed funds, you would probably find assistance from a properly qualified and licenced financial planner.
Obtaining a professional service in the ‘non conforming’ mortgage market is no different. Always seek the services of a ‘non - conforming’ mortgage loan specialist.
Most mortgage brokers today are competent enough to assist borrowers with simple mortgage needs, however few specialise in the area of non conforming mortgage loans.
Even if you have substantial ‘credit impairment’, you should still endeavour to secure the most appropriate mortgage product available to you, rather than accept a less than satisfactory alternative.
As specialist Mortgage providers, we at Assent Mortgage Finance take pride in our service commitment to our clients as well as our thorough understanding of the non conforming mortgage industry in Australia.
Our service is backed with over 30 years financial services experience, Professional Indemnity Insurance, membership of the Finance Brokers Association of Australia, a member of the Credit Ombudsman Services Ltd, Finance Brokers Licence number 2688 and full brokerage and commission disclosure.
Tip Number 5
Collect as much documentary evidence of your credit history as you can. Any correspondence between you and your lenders and creditors will assist in your application.
For your broker or proposed lender, having a complete history of your credit history is quite important.
By outlining the genuine reasons for your credit defaults, gives a lender the impression that your intent to repay was or is unquestioned.
If a lender recognises that you endeavoured to work with your creditors at all times and that the reasons for your credit impairment were genuine, your chances of a successful mortgage application will be enhanced substantially.
By having the reasons outlined in writing, will give your mortgage broker the opportunity to advocate clearly to any lender, the circumstances of the credit impairment and the steps that you took to adequately address the situation.
Many lenders understand that many Australians may have some financial difficulties caused by financial over commitment, business failure, health issues or other factors.
Lenders are genuinely looking to assist customers who demonstrate the right behaviours and who look to repay their commitments.
If a mortgage proposal presented by a specialist mortgage broker is submitted covering off any mitigating circumstances that precipitated a financial problem, then more often than not, the application will be viewed favourably.
Tip Number 6
Obtain a copy of your credit file.
We have all heard of the term ‘credit rating’, however broadly speaking, this is not an entirely accurate portrayal of how your credit file is constructed. In essence, there is no rating as such, merely a detailed list of credit enquiries, defaults and legal actions.
In Australia, there are a number of credit reporting agencies, however there is one company that keeps records of individual’s credit histories.
You may be surprised to learn that these reporting agencies do not have records of individuals who have adhered to the terms of their credit contracts; rather, the information on file generally covers:
- Credit enquiries
- Credit defaults
- Writs / summons / judgments
- Bankruptcy / Part IX / Part X
As far a lender is concerned, a key aspect of the mortgage application process is an understanding and awareness of a credit applicant’s loan history and usually an awareness of any history of credit default.
It may seem unfair that little attention is drawn to positive loan repayment outcomes as substantially more attention (as far as a lender is concerned) is focussed on the number of credit enquiries made and the extent (if any) of an applicants history of credit default or legal action.
As mentioned earlier, you are entitled to obtain a copy of your credit file, and often it is a worthwhile decision to get a copy, to know exactly what has been recorded against your name.
To get a copy of your credit record just click here and we will obtain your Credit report at no charge or obligation.
By having a copy of your credit file you can do a number of things to improve the chances of seeking mortgage finance or refinance in the future as you can confidently address each default or line item to the satisfaction of a proposed new mortgage lender and you can identify any listing that should be contested, if you believe that it should not be on your file at all.
In fact we have a service that provides the opportunity to identify whether borrowers can have their credit file reviewed and their cases reassessed for resolution with financiers.
For a set fee of $220.00, the legal team at CLA, a Sydney based law firm, will assess your file and then advise you of any potential problems and will also provide a comprehensive credit assessment report. This report will advise of any legal avenues that may be available to fix the file and will provide an estimate of the costs for actioning the file accordingly.
If you wish to know more, please provide your contact details by clicking here, for more information, without obligation.
Tip Number 7
If refinancing or consolidating debts, tidy up your property to get the 'best' valuation possible!
This is not rocket science!
If your property is in a poor state, the valuation conducted by any new lender will reflect its current state of marketability and that is poorly.
By cutting the lawns, cleaning up the gardens, a trip or two to the tip with any junk that’s lying around, perhaps a lick of paint and just an impression of general cleanliness should provide the best chance you can of getting a better property valuation for the lender to rely on.
Remember, a lender relies on the calibre of a property to secure its interests (the loan) and if the valuation is affected by a poor cosmetic appearance, and your ‘Loan to Value’ ratio expressed in percentage terms is tight, you may find that there may not be enough equity to consolidate or refinance your current commitments.
Lenders are looking to see if their security can back up the loan outstanding in the event of payment default. You’d be surprised what a clean up inside and out will do for the value of your home.
Tip Number 8
Can you get mortgage finance if you are a discharged bankrupt or even if you are still paying Part IX debt agreement?
This is quite simple and is an extension of Tip number 5. Many Australians, who have been bankrupted, believe that even following the discharge of their bankruptcy, they would be ineligible to secure mortgage finance again.
Not so!
However, and again, by having a comprehensive understanding of the circumstances of the bankruptcy, a lender will be more inclined to look favourably at a mortgage loan proposal, with an understanding of those circumstances.
Just a brief record of the dates, reasons, and conduct before, during and after the bankruptcy process will offer you a better chance of securing mortgage finance in the future.
Also, lenders credit policies tend to be more lenient towards discharged bankrupts who have been discharged for over 2 years. In some circumstances and even surprisingly a major Australian Bank will still consider a discharged bankrupts application just 1 day after discharge, whilst others will not consider it for over 3 years.
A Part IX or Part X of the bankruptcy Act is a mechanism to allow debtors who are insolvent to pay their creditors on arrangement. As client’s circumstances change over time, they may also be able to secure mortgage finance with or without the arrangement actually being finalised.
It is all dependant on the various lenders’ credit policy.
Again, a specialist mortgage broker will understand these policies and will be able to advise accordingly.
Tip Number 9
I’m behind in my home loan repayments. Can I still get a mortagge to refinance all my debts?
The simple answer is yes, however the more complicated answer could be, it depends!
For most applicants, even with current home loan arrears, you may be able to satisfy a lenders credit policy as the arrears may be as a result of is sues you had little or no control over.
Again, things like unemployment, marriage break-ups, or illnesses can cause financial problems almost immediately for many families.
The critical issue though is, you should address the situation as a matter of urgency as continued default or without a plan to reduce the arrears often leads to more serious legal action being taken by a lender.
Call Assent Mortgage Finance immediately for assistance.
Tip Number 10
Sometimes it’s better to wait...
Sometimes, it pays to wait. In some instances, a mortgage applicant is really in no position to take on any further debt.
There are many reasons for this. Limited income, financial overcommitment, limited equity in a property and chronic payment default are just a few reasons.
If anything, by seeking the services of an insolvency expert or a financial counsellor, a client may well address their individual ‘bad credit’ circumstances which should address the immediate financial pressures first, rather than attempting to leap into more (or just reconfigured) debt.