Bad Credit Home Loans and Income
Your income can play one of the most important roles when getting approved for a home loan, but if you have bad credit, you may be wondering what your options are.
In this article, we look at how income impacts your home loan if you have bad credit, what income you can include in your application, and where you can unlock the best products.
Click a question below for more information, or read on for a thorough understanding of bad credit home loans and your income.
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]How does income affect my application?
The home loans you qualify for will depend heavily on your income, so the more you earn, the more you could borrow. A lender will assess the amount and stability of your income to calculate the size of your mortgage, though your capacity to borrow won’t be based on income alone. They’ll also want to see evidence of any savings, outgoings, and deposit amount.
For applicants with bad credit, home loan lenders will want to know the nature of your existing and/or historical debts, how long they’ve been on your file for and the amount involved. Some lenders will also want to know your credit score, but not all will be concerned about this.
Some credit issues are classed as being more severe than others, so lenders will need to act accordingly.
You may be able to get a home loan even if you have:
- Past defaults, both paid and unpaid
- Discharged bankruptcy
- Late payments
- Part IX and X debt agreements
Lenders are also interested in knowing your employment type, as the lending criteria will differ depending on whether you’re in full-time employment, self-employed, the director of a company, or a contractor. The steadier your income and employment type, the less risky your application, which could lead them to offer you a home loan even with bad credit.
Debt-to-income ratio
Lenders will calculate your debt-to-income ratio – which is simply the number of monthly debts and payments you have in relation to your gross monthly income (before taxes) – to see if you fit their affordability requirements.
The debt-to-income ratio provides lenders with a clearer understanding of your essential payments, and any spending habits may be questioned. Lenders will also use the Household Expenditure Method to gauge whether your current expenses are reasonable for the loan amount you want to borrow.
How much do I need to earn?
Even with bad credit, there’s no general ‘minimum income’ amount specified by lenders. They will assess your application against their individual criteria, so the amount you need will differ from lender to lender. However, you may have to meet extra criteria, depending on the type of bad credit you have.
Lenders will typically consider the following:
- Term length
- Interest rate
- Application type (single or joint borrowers)
- Gross income per applicant
- Untaxed income per applicant
- Rental income (if applicable)
- Credit issue types including the amount you owe and/or have paid off
- Expenses (including car repayments, food, bills per month etc)
- Number of dependants
Many lenders will use a multiple of your salary to determine how much they could let you borrow. So if you earned $75,000 a year, you could potentially borrow five or even six times that amount, though for borrowers with bad credit, this income multiple could be lower.
What income types are acceptable?
Your income is assessed based on the type of employment you have, and while lenders prefer applicants with steady, full-time jobs, there are many other types of income they can consider. You will need to have supporting documents to help support your bad credit application, from proof of income (bank statements and payslips) and personal identification.
A PAYG (pay as you go) employment type where you receive a payslip with tax already deducted will be the most favoured by lenders, as the income type poses less risk due to its security, especially if you have bad credit.
On the other hand, if you’re self-employed and can verify your income, provide tax statements and evidence how long you’ve been self-employed, you could potentially borrow a higher loan percentage. However, low doc loans are also available for those with less evidence, though you’ll likely pay more interest.
Some acceptable non-standard income types could include:
- Contractor
- Bonus, commission, overtime:
- Pension
- Grant
- Certain state benefits (including child support, disability, veterans and Centrelink payments)
- Overseas income
- Stipends
For bad credit applicants on a lower wage, you could boost your chances of getting a more competitive home loan if you have other sources of income, though again this will also depend on the type of adverse you have and how long it’s been on your file.
The expert brokers we work with specialise in helping those with bad credit get on the property ladder with a competitive mortgage. They will be transparent about your prospects, help boost your application where they can, and source home loans from a wide range of lenders. Make an enquiry today to get started.
Can I get a bad credit home loan with a low income?
It’s definitely possible, though whether you’ll get a home loan will depend on the lender, the nature of your bad credit and your current circumstances. According to the Australian Tax Office’s (ATO) rules for tax offsets, a ‘lower income’ would apply to those earning less than $37,000 per year as opposed to the median wage of $53,000.
If you have a low income, you could consider the following:
- Get a guarantor.
This is someone who agrees to take responsibility for your repayments should you miss them. You could even get a no deposit, 100% LTV home loan with a guarantor. - Save up for a 20% deposit or opt for Lenders Mortgage Insurance.
Lenders prefer 80% loan-to-value (LTV) home loans, especially for bad credit borrowers. However, if you can’t save up for a deposit, you can pay for LMI. - Use a first home owner’s grant.
You could get a bonus of up to $26,000 depending on the property you buy as well as benefit from stamp duty concession. - Opt for a specialist lender.
While you could possibly get a home loan through one of the bigger banks, there are lenders who specialise in arranging mortgages for those on a lower income and the brokers we work with can help you find them - Factor in other expenses when buying a home.
This will avoid you having to dip into borrowing more money to pay for the extra expenses and fees associated with getting a home loan. - Low doc loan.
If your employment type doesn’t allow you to keep a clear income record to support your bad credit application (such as a taxi driver), a low doc loan could be an option as you only need to provide basic details about yourself. - Reduce your outgoings.
Demonstrate to lenders that you’re financially responsible by reviewing your current outgoings and cancelling any non-essential expenditures.
For the best advice, speak with a bad credit home loan broker. They can review your circumstances to gauge what sort of mortgage you may be able to get, then search for highly tailored products to suit your needs and circumstances. It’s free to get in touch and there’s no obligation to take things further.
Can I get a home loan while unemployed?
Unfortunately, it’s very difficult to get approved for a mortgage if you’re currently unemployed because you don’t have a regular stream of income in place to meet your repayments.
A lender may agree to give you a home loan if you have an alternative source of income, though if you cannot prove that you are in a financial position to afford your repayments, you most likely will not be able to get a home loan.
I have a high income and bad credit, can I get a mortgage?
Your chances of getting a better mortgage will be greater if you take home a larger salary that’s relative to the amount of money you want to borrow. If you have enough income to comfortably cover the repayments, it’s possible to be approved for a home loan with a bad credit score, though the terms and interest rate may not be the greatest.
However, by working with an expert advisor, they can find deals from lenders who look more favourably on bad credit applicants.
Speak to a bad credit home loan broker
Having a poor or low credit rating shouldn’t mean missing out on the home of your dreams, which is where we come in. We can match you with a specialist bad credit broker who can source deals from a wide range of lenders to ensure that you get the best home loan possible.
Make an enquiry and we’ll connect you with someone for a free, no-obligation chat about your mortgage options.
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