It is so easy to get a bad credit rating and challenging to remedy it. Late payments, partial payments, forgetting to pay an account or just being unable to meet your financial obligation to a creditor can all affect your credit score. In the current market, more an more people are finding themselves in a situation where they have a bad credit rating.

Unfortunately, for many people who are looking to buy a home, a less than ideal credit history could prevent them from being approved for a home loan. This has opened up the financial market for home loans that are specifically designed to take into consideration a bad credit rating.

Before applying for bad credit home loans, there are however a few facts, factors and features that you should be aware of.

1. Bad Credit Home Loan Providers

Home loans for bad credit home loans are rarely provided by regular financial institutions such as banks as they consider the risk of approval to be too high. Specialist loan and credit providers apply their criteria to determining whether a person who has a bad credit history is a viable candidate for a home loan.

This means that the loan provider does not simply award mortgages to every person regardless of how good or bad their credit rating is. They will still assess the risk associated with each application, keeping in mind that the property does stand as collateral for the loan and will be repossessed in the event of a default or non-payment of an installment on the due date. These financial providers are referred to as non-conforming lenders.

2. Different Types Of Bad Credit Home Loans

There are a variety of different home loans that are available for different types of bad credit:

– Paid and unpaid defaults loans where an assessment will be made regarding non-payment of debt as this can determine your ability or obligation to repay the home loan. Depending on the extent and amount in default as well as judgments, or orders against you, you may be approved for between 85% and 95% of the total property value.
– Discharged bankruptcy loans are offered to individuals who were declared bankrupt but have since recovered. Although those who have been discharged from bankruptcy can apply for regular home finance, they are often denied due to their previous bankruptcy.
– Part 9 debt agreement loans are for individuals who are undergoing debt agreement administration to assist them in managing and paying their current debt.
– For those who owe the Australian Taxation Office a significant amount of money, a tax debt home loan is available.
– There are also home loans for those who have restructured their finances using debt consolidation.

There are also a variety of home loan options available for bad credit applicants:

– Variable loans
– Fixed Rate loans
– Interest only loans which are ideal for bad credit as they allow for the interest to be settled before the principal loan amount.
– Economy loans

3. When Should You Apply For A Bad Credit Home Loan?

In most cases, bad credit home loans are provided as a re-financing option or second mortgage to prevent a person who is struggling with debt from losing their home. It is far more difficult to receive approval for a new home loan if you have a bad credit history. However, some non-conforming lenders will take it into consideration.

4. Risk Assessment

As part of the application process, a non-conforming lender will perform a risk assessment. This risk assessment is not only to determine whether a loan should be approved or declined but also to determine the amount of interest that will be offered in providing a home loan amount.

The higher the risk associated with a specific individual, the higher the interest charged will be. This means that you will often pay much more in interest than you would when taking out a home loan through regular financing channels.

It is recommended to first apply through regular financial institutions or banks in case you are approved even if you have bad debt to receive a lower interest rate. You should also apply to different non-conforming lenders to compare interest rates offered by each.

5. Improving Approval Chances

You can improve your chances of approval for a bad debt home loan by taking steps to remedy your lousy credit rating. If you have settled a debt for which you have been poorly rated, contact the creditor and ask them for a letter stating that the debt has been paid or to contact their debt rating agency and have the bad listing removed. You may have to report your case to a court to receive an order forcing a debt agency to withdraw a bad credit rating.

You should also take steps to minimize your current debt as quickly as possible. Pay off outstanding balances first or those debts which have contributed to your bad credit rating. Debt consolidation is a great way to settle a bad debt in one loan amount. Remember to ask for lower settlement amounts from your creditors or lenders and ensure that your consolidation loan will cost you less in interest and other charges in the long run.

Provide proof or evidence to the loan provider to justify that you are making efforts to remedy your bad credit rating. Speaking to a mortgage adviser instead of merely going through the application process will give you the chance to state your case.

It is also best not to apply for new lines of credit or loans while you still have bad debt or default listings against you. You should make an effort to make your monthly repayments to your creditors on time every month which will improve your credit rating. You may also have to wait for some of your bad listings to disappear from your record to successfully apply for a bad credit loan.

There is no guarantee that you will be approved for a bad credit home loan. Monkeymoney.com.au can provide you with more information regarding applying for a home loan.