All lenders have different criteria that must be meet for home loan approval. So, if you haven’t paid a bill on time or you’ve got outstanding debt, then this may create a roadblock for home loan approval. So, how can you negotiate your way around payment defaults?
Can I Get a Home Loan with Several Payment Defaults?
Most lenders won’t be overly concerned with a payment default under $150. They also won’t be worried if you’ve taken a few days longer to pay a bill. But, defaults over $500 taking longer than 60-days to pay can lead to lending restrictions. Typical lending constraints include:
- Under $500 in loan defaults – Restrictions to the amount you can borrow will apply. Depending on the lender, this can be up to 95% of the property value.
- Under $1000 in loan defaults – The maximum amount you can borrow is up to 90% of a property’s value. Of course, this depends on the lender and their criteria.
- Over $1000 in loan defaults – The larger the default, the harder it is to secure a loan. However, in saying this, there are specialist, private and non-conforming lenders that may assume the risk. But, their interest rates will be higher.
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What Happens When I Have a Larger Default?
Default sizes have an impact on your home loan eligibility. Plus, they also decrease the amount you can borrow. Some of the most common defaults considered sizeable include:
- Recent defaults less than $1000 – If your payment defaults are under $1000 in the last six months, then a lender can restrict your borrowing. Typically, lenders will allow you to borrow up to 80% of your property value.
- Defaults over $1000 – When your payment defaults are more than $1000, you’ll need a specialist lender. These lenders will need evidence to back the reasons for default. They will also restrict your borrowing to 80% of a property’s value. Plus, you may incur a higher interest rate until you can prove you’re able to keep up with repayments.
- Payment defaults over $5000 – Partially paid debts over $5,000 represent a bigger problem. Most lenders will not assume this risk. Although, private, specialist and non-conforming lenders may look at your application. Of course, if you pay out your debts before applying for the loan, you’ll increase your chances of approval.
Am I Able to Remove Defaults From My Credit History?
The good news is yes, you can have defaults removed from your credit history. The bad news is this is a long, and drawn out process. So, if you want to improve your credit history the best person to talk to is a credit advisor. They can give you specific advice.
Can a Broker Help Me Improve My Credit Score?
A mortgage broker can make suggestions that will help you improve your credit rating. These include:
- Paying off defaults – If you have any outstanding defaults, then pay these off at once.
- Reducing credit card debt – Maxed out credit cards can indicate a problem. So, rather than applying for a loan with considerable debt already, seek to reduce this.
- Decreasing credit card limits – As you pay off your credit card debt, look to reduce its limit. The less your credit card limit, the greater your borrowing power. Also, a regular payment history shows a lender that you manage your money well.