Getting a Mortgage with Bad Credit

If you're going to borrow money from a lender, they will look into your capacity to repay it. One of the ways they do this is by looking at your credit history. It basically summarises whether or not you have paid your debts on time in the past, and if you have outstanding debts that you still need to settle.

Your application thus becomes an exercise of risk assessment. If you have good credit history, you are treated as a low-risk borrower. In that case, your lender will grant you a loan. But what if you had trouble settling your debts in the past? The lender will see you as a high-risk borrower. Don't worry though since getting a loan if you have a bad credit history isn't impossible, although it can be quite difficult.

Enter the Non Conforming Loan

The non conforming loan is a home loan designed for individuals with bad credit history as well as those who recently went bankrupt. However, since lenders consider you as a high-risk borrower, this type of loan comes with high interest rates as well. But it shouldn't worry you, for a few reasons.

For one, you can see the non conforming loan as your way to acquire a loan again and start over. In other words, you can have a fresh start and get yourself a new home. Sure, you might be paying higher interest, but at least a lender took a gamble on you.

Another reason is that the high interest rate won't stay that way forever. You can potentially lower the interest later on than the initial rate given to you by showing you are actually a low-risk borrower. You do this by making your repayments on time, or even making extra repayments if you can.

All in all, you shouldn't lose hope if you have a bad credit history. A non conforming loan can help you get back on your feet again. Better yet, take a proactive approach and make sure that you pay your bills on time and regularly check your credit history by requesting credit reports. This will help prevent you from defaulting and even getting a non conforming loan altogether. You'll also get attractive loans in the process.

You can also start right by choosing the right home loan for you. Here at Rate Detective, our professional advisors are ready to help you by providing you with rate comparisons of Australia's top lenders. That way, you can assess which one gives you the best balance between features and your personal needs. Contact us today!

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Published on November 11-th, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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