When applying for a home loan, it’s important that you put your best foot forward to give yourself the best chance of success! But what if you have a default in your credit history?
While a bad credit rating can make it more difficult to secure the loan you need, it doesn’t necessarily make getting a loan impossible. With the right knowledge and a strategic approach, you may still be able to borrow the funds you need.
Wondering how to get a home loan with a default in your past? Here’s your guide to getting started.
What is a default, and what does it mean?
A default is what happens when you have an overdue account in your credit history. This may apply to a previous loan or other debts, such as a credit card or utility bill. An account is considered overdue if it is more than 60 days late or if your lender has been unable to reach you.
When you have defaults in your history, these are lodged on your credit file with rating agencies. If you apply for a loan, the lender can review this information to determine the level of risk they are signing up for if they allow you to borrow the money you need.
Applying for a home loan with a default can be difficult. While a previous default doesn’t automatically disqualify you, it can make it challenging to find a lender that is willing to work with you and may even result in additional costs.
Requirements to apply for a home loan
Home loan application requirements vary depending on the bank or lender you’re working with. However, some key features appear consistently across the board.
Generally speaking, to apply for a loan from one of the big banks, you will need to prove that you have no more than $1,000 in defaults if you’re borrowing up to 80% of the property value and no more than $500 in defaults if you’re planning to borrow more than 80%.
You will need to show that you have no more than two defaults for one application and that you have paid back any defaults at least 6 months before applying for your loan. You’ll also need to meet minimum savings requirements and provide a valid reason for your bad credit history.
How to apply for a loan with a default
If you’ve had a previous default, there are some things you can do to improve your chances of getting approved for a new loan.
First, save up at least 5%, if not more, of the property purchase price. Providing a larger deposit can make it easier to secure a loan! You should also pay back any of your debts and have this confirmed on your credit file.
Provide a detailed explanation letter with evidence to support the reason for your default history. If necessary, you might need to consider working with a specialist lender that supports borrowers who have defaulted before. If you do this, you may be asked to pay extra fees for insurance or a higher interest rate.
Need support navigating the complexities of your home loan? You’ve come to the right place! Contact the experts at Our Top 10 to find the best mortgage broker Melbourne has to offer.