When applying for a home loan, your credit history is one of the most important parameters that lenders take into serious consideration. A low credit score or a credit history dotted with payment defaults and other financial troubles can often make it difficult for you to qualify for a traditional mortgage. Bad credit home loans are the loans specially designed by the financial institutions for the borrowers with not-so-good credit background according to Ray Ethell, managing director of Sydney based Non Conforming Loans Pty Ltd. "These loans are designed for borrowers who may have already defaulted in some of their previous home loan payments, Ray Ethell said." The credit impairments that constitute a bad credit history may include one, some or all of the following - Unpaid bills or tax Mortgage or loan arrears Discharged bankruptcy or Part 9 Unsecured debt consolidation (credit cards and personal loans) Company administrations Is it possible to get a home loan with bad credit? There are certain lenders known as Non Conforming Lenders who offer home loans even to such borrowers those have a bad credit history but with strings attached. As such, loans can be very risky to the financier so they are offered at a slightly higher rate of interest than the normal loans keeping in mind that it doesn't hurt the borrower much. This type of home loan is offered usually with a co-borrower, a tad higher down payment and a bit more security. But most of the lenders now a days offer loans at almost the same interest rate in the highly competitive financial market, as for the regular borrowers with no impaired credit history. How are bad credit home loans assessed? They are assessed on the merit of each and every borrower depending on his credit history. This is important because the companies decide on the particular information, how much the loan should be priced at and what are the risks involved. Generally, the lenders price bad credit home loans at a slightly higher rate of interest than the credit available in the market for non defaulters in the wake of risks associated. It is generally considered better if the loan default history is older, borrowed loans are cleared and the income source is active. General rules for pricing bad credit loans are based on following parameters: - The duration of credit default history Are the loan defaults paid or unpaid and if paid how long after default was listed Nature and type of credit defaults The loan to value ratio (LVR) The employment standing or the source of income of the bad credit loan applicant. The location of the security property How to improve your chances of obtaining a bad credit home loan with minimum hassle: - 1) The applicant should be updated about their credit history and the nature of history- Utility and Telco type defaults are considered less severe than financial defaults. 2) The applicant should request for the lower loan to value ratio as with lower loan to value ratio he needs to pay a lower rate of interest. 3) The applicant should be able to highlight his present source of income to the lenders as it adds to his chances of assessing new loans. 4) They should be aware that the older the default history the better. Is there any way to boost my credit score? Yes.. Pay utility bills, get on electoral roll, do away with old accounts or update them, pay subsequent debt payments on time - these are all 'working' methods to fix bad credit history. Do lenders try to understand the reason why you have a bad credit history? If you apply for a home loan for bad credit, you sure will have the opportunity to explain the reason why you had trouble managing your finances. There are experts you can sit down with and explore various bad credit mortgages options in detail. Can borrowers with mortgage arrears and/or unpaid defaults qualify for a bad credit home loan? In most cases, the answer to this question is a 'Yes.' It is possible to borrow to 95% LVR on a purchase and to 90% LVR on a refinance in a high population area.
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