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If you have bad credit, you may mistakenly believe that lenders will reject your application for a home loan. Bad credit does happen to good people, and lenders realise that. In fact, you aren’t alone.
The amount of household debt per person in Australia sits at about $79,000, according to the Australian Bureau of Statistics. Further to that, Mortgage Choice’s first Money Survey found 53.4% of Australians are “concerned” about their financial situation. If you are one of those people, you may have many untrue thoughts about home loans running through your head.
There are many myths out there about bad credit and home loans, so join us as we set the record straight!
- If you have bad credit, you won’t ever get approved for a home loan
The biggest bad credit myth is this – lenders or brokers will take one look at your credit history and reject you without a second thought. This is patently untrue! Lenders and brokers want to help people get approval – its good business! Of course, they want to grant approval responsibly.
Best lending practices may mean some people have to wait a couple of years until their credit improves before a lender will approve them. In some cases, you may have errors on your credit score that you need to fix. Fixing them can go a long way in helping you get approval.
- The lender will give me the highest possible interest rate no matter what
Not true. A lender or broker is a financial professional. Their job is all about numbers, and not every default on a credit history is created equal. Defaults may be relatively small – you could have one over an unpaid bill in your name – or they could be “ancient history” – over five or six years old.
While defaults will affect the lender’s final decision and what interest rate they’ll offer, the size and history of the default makes a big impact.
- I’ll have to pay high interest rates for the mortgage term
A big fat lie! A bad credit home loan doesn’t have to burden you with high interest rates for the lifetime of your mortgage. If you are responsible with your finances and your credit history improves, over time you may qualify for a refinancing deal at a standard interest rate.
- I have too many outstanding debts to ever qualify
The reverse is sometimes true – if you act quickly to avoid defaulting on smaller loans such as credit card debt or personal loan debt, you can consolidate them into a bad credit mortgage.
This way, you can pay them all off under a lower interest rate. This also helps your credit history, as it won’t record defaults and missed payments. Over time, you can apply for a more favourable refinance rate.
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