Having a partner with bad credit is a more common occurrence than people think, and it is only when they apply for a home loan together or worse yet, get knocked back that most couples realise this.
We deal with bad credit home loans all the time so before you start re-evaluating your choice in a life partner, we can usually help you buy a house when your spouse has bad credit.
My partner has bad credit, can we get a mortgage?
Yes, in fact, there are several options when buying with a spouse who has bad credit:
- Apply as a solo applicant: The simplest option is to apply for a home loan by yourself as a solo applicant. This requires you to be able to service the loan on a single income and only your name will be on the property title. Borrowing power (serviceability) may be an issue here.
- Common Debt Reducer home loan: A CDR is a great way for a husband and wife where only one of the parties is an applicant to improve their borrowing power. A CDR allows the use of reduced living expenses and shared debts for servicing the home loan as long as the non-borrower can evidence self-supporting income.
- One borrower two owners: With this structure, one person can borrow on a jointly owned property. However, only a select few lenders will accept this structure.
- Apply with a bank that can consider small defaults: Some prime lenders can consider financial defaults of less than $1,000 (financial) and less than $500 (non-financial) under their standard policy. If approved, unpaid defaults will need to be paid at settlement.
- Apply with a specialist lender: Specialist or non-conforming lenders offer what’s known as bad credit home loans. It is designed to help borrowers who fall outside the bank’s standard lending criteria. Depending on the nature and severity of the adverse credit listing(s), you may have to pay a slightly higher interest rate.
- Recalibrate your timeline/Save up a bigger deposit: If none of these options work for you, you may simply have to wait for the adverse listing to fall off your partner’s credit file. In the meantime, you can save up a bigger deposit and work on improving your credit score.
How do I qualify?
The first thing you want to do is to find out exactly what caused your partner’s bad credit by looking into their credit file.
You can do this by requesting a free annual copy of both your credit report from Equifax or Experian or Dun and Bradstreet.
This will give you an overview of both your credit history and help you identify any potential credit issues. You can also use our credit score calculator to help you work out potential red flags.
Incorrect information on your credit file can be fixed by contacting the credit reporting body, while defaults even if paid will stay on your credit file for up to 5 years.
Alternatively, you can contact our specialist mortgage brokers who can look up your credit file, identify all the credit issues the banks may object on and carry out a full assessment to figure out which lenders will accept your situation.
This way you avoid adding any more credit enquries on your credit file further decreasing your credit score.
Speak with one of our specialist mortgage brokers by giving us a call on 1300 889 743 or fill in our online assessment form to find out if you qualify.
What types of bad credit are accepted?
Once we have all the details of the adverse credit listings on hand, we can work out which lenders will accept your situation.
Our specialist lenders can consider adverse credit listings such as:
- Too many credit enquiries
- Paid and Unpaid defaults
- Part IX agreement
- ATO Tax debt
How big of a deposit do we need?
One of the biggest roadblocks to getting a mortgage with a spouse who has bad credit is not the poor credit itself but rather the deposit.
As a minimum, you’ll require at least 10%-20% of the purchase price as a deposit.
The bigger the deposit you can come up with, the stronger your chances at approval.
Why do I need a bigger deposit?
Typically, couples who have a partner with bad credit require a higher deposit than usual to qualify for a home loan to avoid going through a mortgage insurer.
Because whenever you’re borrowing more than 80% of the property value you’re required to take out a lenders mortgage insurance (LMI) through a lenders mortgage insurer (QBE, Genworth) who tend to be much stricter than banks.
You can circumnavigate the entire process by coming up with a deposit that’s at least 20% of the property value – this way you don’t have to go through a mortgage insurer.
Lenders sometimes have a Delegated Underwriting Authority (DUA) agreement with their mortgage insurer wherein the bank’s own credit assessors can approve home loans up to 90% LVR without needing the mortgage insurer to assess the application.
Will we pay a higher interest rate?
Yes, in the short term you’re likely to pay a higher interest rate with a bad credit home loan, however, these loans are designed to allow you to purchase a house right now and refinance your bad credit home loan in a few years, once your credit file is clear.
What can we do if we get declined?
- Work on improving your partner’s credit score.
- Wait for the adverse listing(s) to fall off your credit file.
- Save up a bigger deposit.
- Show stable employment and income.
- Avoid adding more credit enquiries to your credit file.
Our mortgage brokers have worked at the credit department of many banks and specialist lenders so they understand exactly how lenders assess bad credit home loan applications.
Give us a call on 1300 889 743 or fill in our online assessment form to find out if you qualify.