Bad Credit Home Loans for First-Time Buyers
As a first-time buyer, you probably can’t wait to get the keys to your home and start making it completely your own. However, if you have bad credit, the fear of getting rejected shouldn’t dampen your excitement – you could still get a competitive home loan even with a less-than sparkling credit rating.
In this guide, you’ll find out if first-time buyers can still get a bad credit home loan, what you need to qualify, what help you could get, and much more.
Read on or click a link to jump ahead:
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[/vc_column_text][vc_row_inner][vc_column_inner width=”1/3″][/vc_column_inner][vc_column_inner width=”1/3″][tek_button button_text=”Get Started” button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” button_position=”button-center”][/vc_column_inner][vc_column_inner width=”1/3″][/vc_column_inner][/vc_row_inner][vc_empty_space][vc_separator color=”purple”][vc_empty_space][/vc_column][/vc_row][vc_row full_width=”stretch_row”][vc_column offset=”vc_hidden-lg vc_hidden-md”][vc_separator color=”purple”][tek_calltoaction cta_icon_type=”no_icon” cta_title=”We’ll match you with your perfect mortgage broker” cta_subtitle=”Save time & money with an expert who specialises in cases like yours.” cta_text_color=”#000000″ cta_button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” cta_button_text=”Get Started”][vc_empty_space height=”50px”][vc_separator color=”purple”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Can a first-time buyer with bad credit get a home loan?
Yes, it’s definitely possible to get a mortgage even with a poor credit rating. How much you can borrow and the interest rate offered will be calculated based on your ability to repay the loan, and lenders assess this by comparing your application against their eligibility requirements. To do this, they can look at your:
- Income
- Employment type
- Living expenses
- Spending habits
- Current rent (if applicable)
- Deposit size
- Financial stability
- Credit report
- Age
They will also look at your current and/or historical debts to calculate how much you could borrow. The type of adverse credit you have on your file (such as bankruptcy or default)m how long it’s been on your record for and the amount you owe(d) will also be factored in, and each lender will categorise them differently.
To offset any risk you may present, you could take out Lenders Mortgage Insurance (LMI). This is an insurance policy borrowers can pay for to protect the lender in case they fail to meet their home loan repayments. If the borrower does default on their repayments and fails to pay on time, the lender can claim on the insurance. By taking LMI out, a mortgage provider could agree to lend you more funds.
Bear in mind that other costs will come into play when purchasing a home, such as legal and/or processing fees, maintenance and repair fees, inspection fees, and insurance.
Bad credit vs low credit
If you have never borrowed any money before or had more than a mobile phone contract against your name, you may have a low credit score. It’s important to note that there is a distinct but important difference to having a bad credit score versus a low credit score.
For first-time buyers with low credit, you may simply have a lack of borrowing history. Lenders want to see that you’re responsible with repaying money, so if you’ve never taken out a loan, credit card or any type of debt before, they may not have a way of gaging how reliable you are when it comes to paying back your debts.
You could work to build your credit score before you apply for a home loan to potentially unlock better rates. One way to do this is to purchase something on your credit card, then pay it off in full each month.
On the other hand, a bad credit score is reflected in those who could have multiple debts, credit cards with high balances, unsecured loans, defaults, bankruptcies, and much more. To the lender, this would demonstrate a lack of responsibility with money, rather than an absence of borrowing.
But the most important thing to keep in mind is that not all mortgage providers base their lending decision on credit scores. Some will simply check your file for the presence of bad credit and assess your application on its strengths, as well as consider how closely you meet their affordability criteria.
What if I have a low income?
While it may be harder to secure a home loan, you could still qualify for one even with a lower income and maybe even have a redraw facility.
Many lenders assume that 30% of your gross income can be used to make loan repayments after other expenses, however, there is no general rule when it comes to income, as each home loan provider has their own criteria for lending. Instead, they will take a closer look at your application and calculate your affordability.
You may even be able to get a deal from a lender who specialises in low income home loans for bad credit, though for more information regarding your options, read our article about income.
If you’re worried that your low income could hinder your chances of getting approved for finance, the bad credit home loan brokers we work with can help. They’ll be with you during every step of your application and will be transparent about your prospects.
What help is there for first-time buyers?
As well as Lenders Mortgage Insurance, first-time buyers could also benefit from the First Home Loan Deposit Scheme, which can help get eligible homebuyers on the ladder by enabling them to secure a home loan with a smaller deposit.
To qualify, you need to meet the following criteria:
- Be an Australian citizen
- Be aged 18 or over
- Have a minimum of 5% deposit, but not over 20%
- Be the owner-occupier (not for investors)
- Purchase a residential property with a purchase price under the price cap for its location
You’ll only be able to benefit from this scheme via a participating lender, though the good news is that the independent brokers we work with can find these lenders on your behalf and find the best home loans to match your needs and circumstances.
Can I buy my first home as an older borrower with poor credit?
Yes, bad credit applicants aged 55 and over could still qualify for a home loan. However, while there’s no general ‘maximum age’ for when you can buy your first property, you will need to prove to the lender that you’ll have the ability to repay the loan back. You may also have less lending options, depending on your age.
In order to satisfy the lender, you may need to opt for a shorter term instead of the typical 25 or 30-year term, and the interest rate might also be higher. However, you may still be able to benefit from the First Home Loan Deposit Scheme, as there is no maximum age limit.
Which companies offer bad credit home loans?
While you may find companies who specialise in providing home loans for bad credit customers, this doesn’t mean that you’re guaranteed to get the best deal overall.
Some companies who offer bad credit home loans include:
- UBank
- Homestar
- HSBC
- Athena
- Greater Bank
Whether you’re after a fixed or variable rate, a home loan with an offset account and redraw facility or other features, you could unlock even better deals by working with a specialist broker with experience in arranging home loans for first-time buyers with bad credit.
Because they work independently, they’re able to source tailored deals from a vast selection of lenders, some of which may even be unavailable to the public. This means that you’ll have the freedom of choice to get the right loan for your needs and circumstances.
How do I apply for a home loan?
You can apply by going directly to a lender, though to make things easier, you can opt to work with a home loan broker, like the ones we work with. We’ll match you with a broker with experience in getting bad credit customers great mortgages. They can walk you through your application and help with your supporting documentation.
As a bonus, these brokers work independently, meaning that they have access to a vast range of lenders, so they can highly tailored products to suit your needs.
Speak to an expert broker
Getting your first home should be an exciting and life-changing experience, not one marred with worry and uncertainty due to bad credit. A specialist broker can take away this element of uncertainty by showing you what home loan you could get based on your circumstances.
Make an enquiry and we’ll match you with an expert for a free chat about your home loan options today. There’s no obligation to process with an application, and there’s no mark made against your credit rating for getting in touch.
[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column offset=”vc_hidden-sm vc_hidden-xs”][vc_empty_space][vc_separator color=”purple”][vc_empty_space][tek_sectiontitle st_title=”We’ll match you with your perfect mortgage broker” st_title_tag=”h3″ st_subtitle_decoration=”” st_separator_enable=”separator_off” st_text_align=”text-center” st_width=”st_fullwidth”][vc_column_text]Save time and money with an expert who specialises in cases like yours
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