Bad Credit Home Loans

Bad credit affects more than the irresponsible. Bad credit can happen to anyone. Here’s how bad credit scores work, and how your score can affect your property purchase.

How to get a loan with bad credit

Is there such a thing as a bad credit loan?

When someone has “bad credit”, it means they haven’t kept up with their credit obligations. They may have missed loan repayments, failed to pay off credit cards, not paid their rent on time (if at all!), or had a vehicle repossessed, for example.

A bad credit score, based on your credit history, may therefore prevent you from securing a home loan. Each black mark on your credit report increases the chances that a lender will say “no”.

Many people aren’t aware they have bad credit until they are refused a loan.

Understanding bad credit history

It helps to be aware of your credit situation. You can get a credit check from the Australian Government, which contains your personal details including your name, gender and address. The file also contains previous home addresses and your employment history, as well as a record of every loan enquiry you’ve made in the past five years.

Whenever you apply for a loan, you generate a new enquiry. You may even generate one if you ask about home loan rates without applying – however, you can rest assured that asking UNO about rates won’t show up on your credit report.

Legal issues are also recorded. In particular, the file contains information about court judgements and writs. Bankruptcies and Part 9 agreements also get noted.

Should I be worried?

In some circumstances, your credit report generates what’s known as a black mark. Usually it’s because you’ve missed a payment on your mortgage or have credit card debt. These black marks ultimately factor into banks and lenders’ decisions about whether to give you a loan. Too many black marks lead to a refusal.

In a nutshell, lenders don’t like bad credit. A black mark on your credit file can indicate that you aren’t reliable and are therefore at risk of not paying back your loan.

There are several types of bad credit, including:

  • Poor credit history

Defaults and bankruptcies leave big black marks on your report. Making too many loan applications can also damage the report.

  • Mortgage arrears

Every missed home loan payment counts against you. If you have missed several in six months, most lenders won’t offer you a loan. One missed payment can lead to refusal for refinancing.

  • Unpaid bills

Overdue bills will show up in the documents you give to lenders. They are another indicator that you may not pay back a loan.

  • Your history with a lender

A poor history with the lender you apply to is a major black mark. Most don’t forget previous issues easily.

  • Too much debt

Having too much debt for your current income to sustain could stop a home loan in its tracks, particularly if a lender considers you insolvent.

Each black mark pulls you closer to having bad credit.

Am I at risk of bad credit?

It may surprise you to hear that bad credit affects more than the irresponsible. A number of circumstances can lead to people entering bad credit. For example, a divorce or an injury can often create black marks on a credit report. It only takes a couple of missed payments to make lenders wary.

Bad credit can affect affluent people. This is because such people often have larger mortgages, sometimes with high Loan to Value Ratios (LVRs). Couple this with the fact that wage rises have not matched the property market and you will see how easy it is to fall into bad credit.

Be aware of financial stress

According to the Australian Bureau of Statistics’ 2015-16 Household Expenditure Survey, a household can be said to be in financial stress if they experience four or more indicators of financial stress within a 12 month period.

There are two types of financial stress indicators: financial stress experiences and missing out experiences.

Financial stress experiences

  • Unable to raise $2000 in a week for something important
  • Spend more money than received
  • Could not pay gas, electricity or telephone bill on time
  • Could not pay registration or insurance on time
  • Pawned or sold something
  • Went without meals
  • Unable to heat home
  • Sought assistance from welfare/community organisations
  • Sought financial help from friends or family

Missing out experiences

  • Could not afford a holiday for at least one week a year
  • Could not afford a night out once a fortnight
  • Could not afford friends of family over for a meal once a month
  • Could not afford a special meal once a week
  • Could only afford second hand clothes most of the time
  • Could not afford leisure or hobby activities

(Source: ABS)

In 2015-16, 15% of Australian households (approximately 1.3 million people) met this criterion for financial stress. As in previous years, the most commonly reported indicators of financial stress were the inability to afford a holiday for at least one week a year (23%), followed by an inability to afford a night out once a fortnight (17%).

Households in financial stress tended to be lone person households (28%) or couple families with dependent children (26%).

If any of these stresses affects you, or you’re worried about your financial situation, it’s a good idea to talk to a financial adviser about your options.

Can I get a home loan with bad credit?

Despite the risk, in some circumstances lenders will issue home loans to someone with bad credit.

Such lenders examine situations that would lead to a traditional lender refusing a loan. In many cases, those with black marks can secure special mortgages using these non-traditional lenders.

Specialist lenders tend to look at borrowers individually instead of using automated systems. They will listen to what you have to say and assess you based on your story. Also, such lenders can help you achieve fast approval for a specialty home loan.

Specialist lenders do this to offer people the chance to get back on their feet after a rough patch. Bad credit borrowers will often face higher interest rates, however. As a general rule, the higher the risk attached to the borrower, the higher the interest rate of a bad credit loan. You may also have to pay Lender’s Mortgage Insurance (LMI).

With good financial management, a borrower can clear up his or her credit file and gain access to better rates and loans.

As an online mortgage broker, UNO works with several lenders who focus on helping those with bad credit. You can email us at customer.care@uno.com.au about your situation.

Bad credit loans by type:

There are five types of bad credit home loans you can access, although it’s a good idea to speak to an expert about your options before applying for any of these:

  • Default home loans

Some lenders will look at both the paid and unpaid defaults on your credit report. A default is generated if you fail to pay a bill totalling more than $150, for 60 days past its due date. Defaults usually prompt lenders to decline the loan, because it says to them you cannot pay your debts.

  • Discharged part IX debt agreements loans

You might be able to access a Part IX (9) debt agreement loan if you have entered and discharged a debt agreement, known as a Part IX, which is a legally binding agreement between you and your creditors. A debt agreement may be a suitable alternative to bankruptcy. Speak to a UNO adviser about which lenders offer part 9 debt agreements and the best rates on offer at the moment.

  • Discharge bankruptcy loans

Bankruptcy tends to lead to lenders refusing your home loan application. You exit bankruptcy when you meet the discharged condition. This is also the point when you can start applying for credit again.

Many lenders are wary of those who have been recently discharged from bankruptcy. Despite this, some exist who will consider a home loan the day after you are discharged.

  • Debt consolidation loans

You consolidate your debts when you take multiple small debts and combine them into one larger debt. Doing so can help you avoid bad credit – although this still indicates unreliability.

Despite this, there are some lenders who will help you with debt consolidation. In some cases, you can consolidate your debts into an existing mortgage. Although this creates a larger mortgage payment, it can make your debts easier to manage and is likely to reduce the total interest payable on things like credit cards.

  • Tax debt loans

A tax debt loan involves combining the debt you owe to the Australian Taxation Office (ATO) into your home loan. ATO debt can occur from a simple mistake on your tax form. It’s surprisingly common. Taking this type of loan erases the ATO debt, though it may increase your mortgage repayment amounts.

Where to from here?

Bad credit home loans are a short-term solution to debt issues and often come with high interest rates.

On a general level, those considering selling their homes to cover their debts may benefit from bad credit home loans. Instead of potentially losing money on a sale, the borrower can work on clearing their debt and improving their credit report.

Many specialty lenders offer bad credit loans that help borrowers clear black marks from their reports within three years. After that, the loan reverts back to a more traditional format.

People who want to keep their homes while making a fresh start might consider bad credit loans too. Instead of refinancing immediately, you can give yourself some space to clear your credit report. A better credit report tends to mean a better refinancing deal.

Please note that this is general advice. You should always email us at customer.care@uno.com.au about your situation before making any decisions about bad credit home loans.

What other options do I have?

A UNO home loan adviser can help you figure out how to set your credit report straight. They can offer advice specific to your situation and help you create a plan.

Avoiding more black marks will often be part of that plan. After all, getting more black marks while you try to clear existing ones takes you back to square one.

These general tips should help you avoid landing in more credit trouble:

  • Stay in touch with your lenders to ensure you don’t miss important information
  • Keep making your payments on time
  • Clear all of your current defaults
  • Avoid situations where you pay $0 on a debt. You may also consider delaying your search for a home until you clear your credit report. This is not always the right choice. You may find buying early can help you build equity. This positively affects your credit report.

Please note that the information above is general in nature. You should always consult with a professional, such as a financial planner or a home loan adviser, before pursuing a bad credit mortgage.


Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles

TESTIMONIALS

What our customers are saying

John Cahill
March 7, 2024
Scott Wilkinson was my broker last year when I sought finance for a new property investment and refinance for my property port folio. He was an absolute delight to work with. He was always professional, on time and always available to talk at a moment's notice to discuss my credit options and give well considered advice; usually this was very much after-hours due to my work commitments during the day. He was always happy to talk. I had not used a mortgage broker in a long time opting to do the re-financing myself. This was primarily due to disappointing experiences I'd had with mortgage brokers in the past. However with the increasing complex nature of dealing with credit providers, I could see that I needed a good advocate to act on my behalf for this particular refinance. In all honesty I did not hold much hope that in the current credit environment I would be able to secure the finance I required for the new property investment I was wishing to secure. Scott found a way however and was able to secure the finance along with the refinance of my portfolio. I have since referred friends to Scott and I know they have been very happy with his work. He is ideal for property investors who have busy day-jobs and need someone who understands property investment strategy and is able to tailor credit advice and options to their needs. Scott provides this advice and information in a way that is clear and concise. He kept me up to date continually during the application process. He made what could have been a very stressful and frustrating process easy and straightforward. I could not recommend Scott and the team at UNO Home Loans more highly. They are all a delight.
Read more
Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
Read more
Rod
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
Read more
Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
Read more
Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
Read more
Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
Read more
Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
Read more
Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
Read more
Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
Read more
Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
Read more
Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
Read more
Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
Read more