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Do You Have Bad Credit Due To Job Loss?

Job loss can be a devastating experience for any Australian. While many people do find their feet again, it can sometimes take a while to find work.

In that time, bills and debts can quickly pile up and people who are unemployed can quickly find themselves missing mortgage payments, defaulting on their mortgage or even facing bankruptcy.

With unemployment rates and household debt on the rise, it’s something that banks see on a regular basis. Unfortunately, it won’t stop them from knocking back your home loan application if they see black marks on your credit file.

However, by showing that you’re improving your financial situation after job loss, getting approved for a home loan with bad credit is still possible with the right lender.

Why do people get into financial problems?

There are many reasons why people who have lost their job can fall into debt and financial hardship.

Many continue to live and spend as if they still earn a salary. Rather than cutting their expenses, many people run out of savings and end up maxing out credit cards or applying for personal loans just to pay their bills, keep their car running or pay for regular expenses like groceries.

Job loss can be demoralizing and many people fall into denial about how dire their situation actually is.

How can I get a home loan?

Specialist or non-conforming lenders can assist people who have bad credit due to the loss of a job because they take a more sense approach to assessing home loan applications.

If you can provide strong reasons for why you incurred black marks on your credit file and evidence that you’re now in a more stable financial position, you may still be able to get a home loan.

It’s important to keep in mind though that you will pay a slightly interest rate with these types of lenders.

The reason is that they’re unregulated and don’t have the same protections as major banks and lenders.

Essentially, they are taking on the risk of your loan without insurance so they will apply a risk premium. You can read more about this on the bad credit home loan page.

Are all types of bad credit accepted?

If have a small paid default of less than $500 and it’s been paid for more than 6 months ago you may be able to borrow up to 95% of the property value or Loan to Value Ratio (LVR) with a bank.

That means you can get the same interest rates as a borrower with no adverse credit!

Did job loss cause you to get a huge default?

There are actually specialist lenders out there that will accept up to $500,000 in defaults at 90% LVR.

Serious credit issues such as judgments and court writs, or if you’re discharged from a Part IX agreement or bankruptcy may also be considered by a non-conforming lender.

Do I need a large deposit?

Depending on the nature of your credit issues and whether you want to get approved with a prime lender, you may need as much as 20% of the property value as a deposit.

However, if you just want to get approved and aren’t in position to save such a big deposit, specialist lenders may accept a 10% deposit instead.

In fact, with the help of a guarantor, you won’t require a deposit at all!

Complete our free assessment form to discover if you qualify for this option.

Do you already have a home loan?

You may be in a position to consolidate your debt into your mortgage, bringing all of your repayments under one low home loan interest rate.

This is better than continuing to pay at the higher rates that come with credit cards and personal loans. You can potentially save thousands of dollars!

Why do banks have a problem with bad credit?

Did you know that it only takes 60 days in arrears for you to default on your account whether it’s a credit card or a mortgage?

The problem is that even if you’re now in or moving towards a better financial position, these black marks are recorded and will remain on your credit file for some time.

These details can be kept on record for as little as 2 years (debt repayment history) and for as long as 7 years (for declaring bankruptcy)!

You could be knocked backed for a mortgage years after you’ve gotten back on your feet and paying all of your financial commitments on time.

Banks rarely look into the reasons why people have bad credit. If they see an adverse credit file, it’s an indication that you’ll also struggle make mortgage repayments.

The good news is that there are specialist lenders that understand that people who have lost their job are not bad people.

In fact, job loss can be out of your control in many cases such as being made redundant or having to quit work due to a life event.

These events can include the death of loved one or spouse, which can require the surviving income earner to quit their job and stay home to look after children.

The same goes for a loved or family member falling ill and requiring care that only you can provide.

Tips for getting out of debt after losing your job

MoneySmart suggests that one of the first things you should do is to find out and use any income protection insurance or mortgage protection you have in place.

At the same time, start looking for temporary or part-time work. It may not be permanent full time salary but every little bit of income helps to curb financial hardship.

This can be easier said than done in a slow job market but speak to temp agencies, ask family and friends if they know of any jobs being advertised, and even ask local businesses if they need an extra set of hands.

The next step is to work out how much money you really have. You can do this by listing every expense you’ll have over the next 2 months including:

  • Bills.
  • Credit card payments.
  • Existing loans.
  • Home maintenance.
  • Regular household expenses.

Not only should you work out what you owe but you should also find out what is owed to you.

For example, If you lost your job because your employer went into liquidation or went bankrupt (after 5 December 2012), then you may be able to make a claim through the Fair Entitlements Guarantee (FEG).

If you don’t have insurance and your savings are running low due to your current and upcoming financial commitments, don’t hesitate to seek assistance from Centrelink (processing times can sometimes take weeks so keep this in mind).

Above all, don’t live beyond your means when facing financial difficulty: you’ll simply dig yourself deeper into hardship.

If you have bad credit due to job loss, please call us on 1300 889 743 or fill in our free assessment form to find out if you can qualify for a home loan.