People wonder if you can get a home loan or mortgage if you have bad credit, or if you’d had trouble getting finance in the past. It also isn’t uncommon to be turned away by a bank if you do not have good credit.
The first step is to understand what is the bad credit
“Bad credit” can represent a cloud of different issues, or it could just simply represent one issue. It pays to start off by getting a hold of a credit file about yourself. This will help you understand what the bad credit might be, and help decipher the problem.
There is a popular website known as www.mycreditfile.co.nz where you can obtain your credit file. It will help you understand what the bad credit specifically is about.
A default can be loaded on your credit file if you have failed to pay someone you are liable to pay money to. This could be something like failing to pay a credit card. Or you may have not paid your telephone or utilities bill on time for many months.
If you have an unpaid default, you probably need to pay it off before you can be approved for a home loan with most lenders.
lot of people have payments to credit collection agencies such as Baycorp. While it might not cost much in terms of regular repayments, the fact that it is just lingering, is damaging your credit file.
Try to pay off your defaults as fast as possible.
If defaults continue to be unpaid, you will most likely continually find yourself failing credit checks for home loans with most providers.
Alternatively, if you believe that you are not liable for a debt or default, you may want to urgently consider contacting the provider or collection agency and arranging to dispute it.
What happens if defaults are paid?
Therefore, after paying a default, it may not be sensible to rush to get a home loan immediately. It may make sense to wait some time and start to build up a credit file and credit reputatoin again that is credible and able to demonstrate that those bad debts are not likely to repeat.
Applying for a home loan if you have had defaults
What was the default for? If it was for something financial, such as failing to pay a credit card or personal loan, then this may be seen as a risk. However if it was say for a power bill, this could be less of an issue.
When was it paid? If it was paid a long time ago, this is usually more favourable than something that was only just paid recently.
How much was the default? Sometimes, if a default was small in nature, such as just being a couple hundred dollars or less, it might be something that a home loan lender can accept. Generally, defaults that are a $1,000 or more can be much harder to work with.
What are your circumstances now? Lenders need to be convinced that the issues that led to the default are not going to repeat itself. For example, if you had defaults because you lost your job and couldn’t pay the bill, the lender might want to know about your current job in greater detail, and how stable it is.
Where to apply for a home loan?
You may need to accept that certain banks are unlikely to accept an application if a person has had a problem with defaults in the past. However, there are alternative lenders and other providers that can potentially help with this – often most easily accessed through a well connected mortgage broker.