Are you on the hunt for a home loan, but have bad credit? Here's your guide to applying for a mortgage with poor credit.

According to the law, Australian lenders have an obligation to be prudent when lending money. If they don’t think you can repay a loan, it’s likely that your application will get turned down. For example, if someone attempts to apply for a home loan with troubled credit due to delinquent payments or defaults in their history, there is little chance of them being approved by the lender.

Despite your poor credit score, lenders may still take into account other elements of your application that could make up for it or show a shift in borrowing habits. These include but are not limited to: making efforts to pay off past debt, income status, assets and liabilities, job history along with the amount you wish to borrow and how much of the deposit you can put forward yourself.

How does a poor score history affect a future home loan?

Missing a payment related to your credit card, bill or mortgage will be recorded on your credit file by Equifax and other agencies. Factors such as these should always be taken into account:

• If you have experienced any overdue payments in your current mortgage within the past six months, this will likely have a detrimental effect on your credit score. Most banks and lenders won’t even consider an application from someone who has missed one payment – making it essential to stay on top of repayments!
• If you have a low credit score, it’s critical to analyse your prior relationship with the lender when applying for a home loan. If any issues arose between you and the creditor in the past, chances of being approved diminish drastically.
• Are you continually battling with too much debt and an inadequate income? A poor credit score could make it more difficult for banks to consider your application for a mortgage. If the sum of your debts surpasses what you earn, loan providers might turn down your request entirely.

What is a bad credit home loan? 

Even if you have a low score, some lenders may be willing to provide more lenient terms for your home loan application if they can see that you are capable of making steady repayments. Additionally, there are numerous loan programs designed specifically with those who possess poor credit in mind.

When seeking a poor credit home loan, it is beneficial to remember that lenders may require added criteria or higher interest rates in exchange for taking on the financial risk. To ensure affordability and receive prudent guidance, consulting an independent source of advice can be very useful.

How to get a home loan with poor credit

Despite your poor credit score, there are a few simple steps you can take to boost the likelihood of getting approved for a home loan.

Increase your deposit

When you submit an application for a home loan with negative credit, having a deposit of 20% can be advantageous. If the amount borrowed is higher than 80 percent of the property’s cost, two approvals are necessary – one from the lender and another from the mortgage insurer who safeguards their interests in case you fail to meet your repayment obligations. Stowing away a sizeable down payment will likewise demonstrate to possible lenders that you have earnestly attempted to mend past financial missteps.

Find a lender willing to look past the credit score 

Unfortunately, many lenders are quick to deny any loan applications with a low credit score. To find the right lender for you, it’s essential that you take the time to thoroughly research multiple financial institutions and assess their individual policies on poor credit scores.

Go guarantor

Securing a home loan may seem difficult but having someone to guarantee your mortgage could help reduce the risk from the lender’s perspective. Although, if you fail to make payments on time and default on your loan, it can potentially lead to trouble for your guarantor as their property might be in danger. It is therefore recommended that you seek advice before taking this route.

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