Finance advice
Otto Dargan

Bad credit doesn't mean you can't borrow

By Otto Dargan

Do you have a bad credit history? Getting your home loan approved comes down to choosing the right lender.

Blogger: Otto Dargan, director, homeloanexperts.com.au 

When life gives you lemons, make lemonade. Although I commend anyone with this level of optimism (mine was lost in a dark pit of despair many years ago), trying to get back on your feet after being hit with financial hard knocks is not just a matter of “starting over”, especially when it comes to getting approved for a home loan.

You may well have made the decision to change your spending habits and get your financials back in order but your credit file records these black marks and they remain there for every bank to hold against you when you apply for a home loan.

Whether it’s through marital separation, job loss or simply living a little beyond on your means with that amazing new credit card, defaulting on your liabilities can happen to even the savviest investor.

In fact, the Australian Retail Credit Association recently found that roughly 14 per cent of Australians have a default or other black mark on their credit file but most people don’t know that they have a “bad” credit history until it comes time to apply for a loan. Let’s hold off adding yet another unnecessary enquiry to your credit file, shall we?

How do I know if I have bad credit?
Bad credit can include:
•    Missed home loan repayments
•    Defaults, bankruptcy, judgments, court writs and having too many credit enquiries on your file
•    Credit history with a particular lender
•    Unpaid bills or tax
•    If you own a company facing financial trouble, receivership or liquidation
•    Excessive unsecured personal debt compared to your current income and asset position

Since March, Veda Advantage began collecting your repayment history for the last two years as part of your credit file. That means if you already had a shady credit history, banks now have more fodder than ever to decline your application.

For some banks, your credit file is the ultimate tool when assessing your worthiness as a borrower but there are lenders that take a more balanced approach.

A specialist mortgage broker can even recommend lenders that don’t check your credit score at all!

Will I always have to go with a non-conforming lender?

Most banks will take a default, judgment or your discharged bankrupt status on face value and will rarely look any further into the details surrounding the black mark.

If there’s one thing I’ve learned in my years as a broker it’s that the banks can change their lending policy at a whim.

Their decision to lend to someone that’s a little outside of their lending policy really comes down to the banks level of risk at the time of your application.

For example, your mate could have gotten approved six months ago but it doesn’t mean that you will get approved with the same bank as well.

Alternatively, your broker may suggest a non-conforming lender, who’ll ask you to provide details on the nature and amount of any defaults on your credit file as well as the reasons behind judgments and even bankruptcy.

Providing evidence that you are paying your bills on time and the default or judgment was a one-off may be just enough to get you loan over the line.

Even with paid defaults amounting to $3,000, you may be able borrow up to 80 per cent of the property value with a prime lender, up to 90 per cent of the property value with a specialist lender or up to 100 per cent of the property value with a guarantor loan with the right lender.

Will I pay a higher interest rate?

If you are deemed to have a bad credit history, then your ability to get approved and the amount of interest you’ll pay will be determined by your loan-to-value ratio (LVR):

For home loans less than 80 per cent LVR, you may qualify for the same interest rate as someone who has no adverse listing on their credit file.

Of course, every situation is different and, with the right broker, there may still be great interest rates available to you.

 

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About the Blogger

Otto Dargan

Otto Dargan

Otto Dargan is a two-time winner of St George Bank's 'Australia’s Brightest Broker' competition and the managing director of specialist mortgage broker homeloanexperts.com.au

Email:
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  ["title"]=>
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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