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 road block for home loan approval. So, how can you negotiate your way around this obstacle?
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.
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.
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.
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.