Whilst not an ideal scenario, the short answer is “yes”, there are instances where an applicant with a poor credit history can successfully obtain a home loan.

What is Bad Credit?

Bad credit relates to your credit score, which is a calculation based off your credit file. The factors it considers include:

• Number of credit enquiries made
• Your payment conduct
• Amount of money borrowed
• Overdue accounts
• Unpaid tax

An algorithm is used to issue a credit score between zero and 1200 which then places you on a scale rating your score as: excellent, very good, good, average, or below average. If you rank low on this scale, you are deemed to have bad credit.

How to Get a Home Loan with Bad Credit

As banks are inherently risk averse, you are more likely to be successful in securing a mortgage using a non-confirming lender or “third tier” lender. These alternative lenders lend on the basis that mistakes can be made and hardship does occur but that does not necessarily mean an applicant should be written off indefinitely.

Often lenders who operate in this space are more likely to look at people and their circumstances in greater depth but also add a human element to the assessment meaning they seek to work with the client to find a mutually beneficial solution where possible.

How Does a Bad Credit Home Loan Differ from a Regular Home Loan?

Given the higher risk rating on a bad credit home loan, higher than average interest rates are likely to apply. Each lender will have their own unique policies and products in this space, but it is reasonable to expect that it will be perhaps more restrictive and more expensive yet it will allow you to achieve your goals in the short term.

The factors that you will need to satisfy for approval consideration will include:

• Good conduct on your current commitments for a set period
• A loan to value ratio under 80%
• Any bankruptcies have been discharged
• Serviceability on the new facility is strong

Bad Credit Home Loans Don’t have to be a Lifetime Sentence

A home loan with a third-tier lender due to poor credit history doesn’t have to be a long-term solution. Ultimately you may be able to refinance to a conventional lender and take advantage of cheaper rates and more flexible products once you demonstrate strong repayment history.

If you are hindered with a bad credit score, don’t despair. Your Blackburne Mortgage broker will be able to see if there are options in the short term to help you reach your goals or put in place a strategy to make you eligible for consideration in the future.

Contact the team for more information.