How to improve your Credit Score before getting a Home Loan?

One of the best ways to improve your chances of getting a home loan is to improve your credit score. It is because better credit scores may give you access to better interest rates and more beneficial home loan products.

Here is a list of some quick tips to help you get the best possible credit score. While there is no guarantee that all of these options will immediately boost your credit score, they may help you establish habits that will strengthen your credit score.

Show you can pay your bills on time, every time

Lenders/credit providers will want to see that you can repay a home loan on time. So, here is a list of bills that you should pay on time, every time:

>>Your credit cards;

>>Your rent;

>>Your medical and utility bills; and

>>Any other service that may use a collection agency for the recovery of delinquent accounts.

If you miss a payment date by a few days, call the service provider immediately to make the payment, and don't be afraid to ask the provider for a one-time forgiveness.

Check your Credit Rating

You should regularly check your credit report with a credit reporting agency (such as Veda Advantage and Dunn and Bradstreet), as it will:

>>Give you an idea if you have any defaults or negative repayments history recorded in your report;

>>Give you time to get the credit report corrected before a lender/credit adviser accesses your report; and

>>Enable you to verify your credit score with a credit reporting agency.

Note: You should be aware that due to the changes in the Privacy Act in March 2014, lenders/credit providers have the ability to access your credit reports and can see the past 24 months of your repayment history.

Maintain your Available Credit

Before applying for a home loan don't open any other credit cards or lines of credit. It is because lenders/credit providers will see you as being a risk if you suddenly take out loans for cars, electronics, furniture, etc.

Also, refrain from closing your credit cards or other lines of credit. Instead, consider paying off your balances as a lower debt will improve your debt-to-credit ratio.

This is best illustrated by the following example:

Having a total debt of $4,000 with a $20,000 available credit will look better than having just $500 in debt with $800 available credit.

Establish a Savings History

If you are borrowing more than 80 percent of the purchase price of the property, you will be required to meet the "genuine savings" requirements of lenders/credit providers. Your savings will need to add up to around 5 percent of the purchase price of the property.

For example, on a purchase price of $700,000, you will need to have savings that add up to $35,000.

Note: Saving a larger deposit should help to reduce or avoid paying "Lenders Mortgage Insurance" (LMI) and you may even be offered a more competitive interest rate by the lender/credit provider.

Avoid applying with too many Lenders/Credit Providers

Avoid submitting your home loan applications to several different lenders/credit providers at once. It is because these loan applications will appear on your credit report. You should only submit your home loan application:

>>After you have compared lenders/credit providers; and

>>After you have decided to go with a particular lender/credit provider.

Your Employment Stability

If you have had the same job for several years, then this is a big tick. So, prior to applying for a home loan, try to establish a stable employment history as it will enable you to make regular loan repayments.

If you have changed your job recently, do not worry. You may satisfy the requirements of lenders/credit providers, if:

>>You have been in a similar role; and

>>You have been in the same industry.

Disclose all Information

Lenders/ credit providers may think that you have other debts that have not been disclosed. So, always be upfront and disclose all information as non-disclosure of relevant information may result in your home loan application being declined.

Seek Expert and Professional Advice

All these tips should help you to improve your credit score. However, you should speak to a professionally qualified and expert finance broker who can help you to create a personalised credit improvement plan. Establishing this relationship with a finance broker will help you to determine which potential lender/credit provider best meets your needs.

All the Best!

Buying a Home is now possible for People with Bankruptcy

If you filed for bankruptcy, because, you were advised to do so by a business person such as a solicitor, you may have realised that: 

>> Bankruptcy can stay on your credit file for up to 7 years; and 

>> Bankruptcy can come back to haunt you when you are trying to get a home loan or refinance your existing loan from one of the major banks. 

But, do not worry if you are a discharged bankrupt looking for a home loan or considering refinancing an existing loan, you can still get loan approval. 

Fortunately, there are now a range of “specialist lenders” that cater specifically to this “niche” and are willing to offer home loans or refinance existing loans to people with discharged bankruptcy. Although these loans can come with: 

>> A higher interest rates compared to regular home loans; 

>> A higher percentage of deposit (i.e. rather than the typical 20 percent, you may need more); and 

>> A fee that may be charged on top of the interest rates. 

What to consider as a Discharge Bankrupt when applying for a Home Loan or a Refinance Loan?

If you are a discharged bankrupt, here is a list of things you should keep in mind, which the specialist lenders may require and more importantly can help you get a home loan after bankruptcy or a refinance loan: 

>> They may require you to provide a sound and transparent explanation regarding the situation that led you into bankruptcy (e.g. critical illness, financial difficulty, etc.); 

>> They may require you to provide evidence as part of your home loan or refinance application process, to indicate that this bankruptcy was a one-off situation, and that it was well beyond your means to avoid; and 

>> They may require you to provide evidence to substantiate that all your financial affairs are now conducted in an excellent manner (e.g. if you are paying rent, are you able to produce a rental ledger to show that your rental payments are being paid on time). 

It can also benefit your loan application process. If you can demonstrate to the “specialist lender” that you have a minimum of unsecured liabilities as is possible. 

What types of Home loans are available to Discharged Bankrupts? 

 

This will depend on the “specialist lender” you choose. Here is a list of loans you can consider: 

>> Basic Home Loans: These are standard home loans that are often considered a no-frills loan. They usually don’t offer additional extras or flexibility in paying off extra on the loan or varying your repayments

>> Low Doc Loans: These are low documentation home loans for people who are unable to supply required proof of income, such as recent tax returns or other financial documentation at the time of the application. They are usually ideal for self-employed individuals or contractors. 

Truly, when your credit has been damaged following a bankruptcy, you have to be more cautious when it comes to your finances. You should take help of a professionally qualified finance broker, who has a thorough knowledge of the credit policies and standard requirements provided by the “specialist lenders”.