Will a default affect my chances of being approved?

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Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Will a default affect my chances of being approved?

Post by Cassie »

Hi there! I am buying a house worth $500,000 soon and I need a home loan for this. But since I have a few defaults on my credit card, I am worried that the bank will not approve my loan. My friend was in a similar situation and her loan was declined. She had to wait a year before anyone would approve her loan. I don’t want that to happen to me. Is there still a chance that I can get approved for a home loan? What would I need to do to ensure this?

FYI – I earn $55,000 a year as a HR officer.

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Will a default affect my chances of being approved?

Post by Otto Dargan »

Hi and welcome to the forums Cassie,

There are lenders who may approve your home loan even if you have few defaults. This however will depend on the types of defaults that you have, how old they are, if they are paid and the total number and dollar value of the defaults.

You may be able to borrow up to 95% of the property value if you have less than $500 in paid defaults. Similarly, you may be able to borrow up to 90% of the property value if you have less than $1,000 in paid defaults. However, if you have any unpaid defaults or larger paid defaults then you will need to apply with a specialist lender and they may be able to lend you up to 90% of the property value.

You may follow these steps if you want to increase your chances of approval:
  • Provide a default explanation letter to explain the causes.
  • Provide evidence to back up your explanation.
  • Save up at least 5% of the purchase price and provide as large a deposit as possible.
  • Before you apply for a loan, pay any unpaid defaults and get the credit provider to mark them as paid on your credit file.
  • Apply with a lender that can accept borrowers with defaults.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: Will a default affect my chances of being approved?

Post by Cassie »

Thanks for providing tips on how I can improve my chances. By the way, what requirements will I need to meet in order to qualify for a loan with a default?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Will a default affect my chances of being approved?

Post by Otto Dargan »

Hi Cassie,

To qualify with one of our lenders, you will be required to meet the following criteria:
  • Not have more than $500 in defaults to borrow up to 95%.
  • Not have more than $1,000 in defaults to borrow up to 90%.
  • Not have more than two defaults in total for one application.
  • The default must have been paid at least six months prior to applying.
  • Must have at least 5% in genuine savings if you are purchasing a property.
  • No other policy exceptions are allowed.
  • Must have a very good reason for an impaired credit history.
If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: Will a default affect my chances of being approved?

Post by Cassie »

Thanks for sharing these detail with me. I will give you a call to discuss one-on-one about my situation. See ya!

marylamb
Posts: 47
Joined: Wed Jun 17, 2009 5:44 pm

Re: Will a default affect my chances of being approved?

Post by marylamb »

Hi there Otto, I am also thinking of buying a house and applying for a loan with a default on my credit file. Reading your replies has made me hopeful about getting a loan. I just needed to ask you about credit file. Basically, what other information is recorded in a person’s credit file and for how long does it remain in there for?

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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Will a default affect my chances of being approved?

Post by Otto Dargan »

Hi marylamb,

Your credit file which is maintained by credit reporting agencies contains your basic details and your entire credit history. This includes:
  • Your full name, date of birth, gender, address, previous address, drivers licence number, employer and previous employer.
  • Last two years history of repayments of your debts (if any).
  • Record of any company directorships (if any).
  • Loans applied for in the last five years.
  • Records of any overdue loans or accounts.
  • Court judgments.
  • Court writs.
  • Any history of bankruptcy.
Your previous credit activities can remain on the credit file for a different number of years. You should also remember that paying a default does not remove it from your credit file. Instead it is updated on your file showing that your default was paid.

The following information stays on your file for seven years:
  • Defaults (clear out).
  • Part IX debt agreement.
The following information stays on your file for five years:
  • Court writs and summons.
  • Enquiries.
  • Defaults.
  • Court judgments.
  • Bankruptcy.
Similarly, your current debt repayment history remains for two years and your last known address and employer details remain for an indefinite period in your credit file.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

marylamb
Posts: 47
Joined: Wed Jun 17, 2009 5:44 pm

Re: Will a default affect my chances of being approved?

Post by marylamb »

Okay, got it. I didn’t know enquiries were also recorded in the credit file. Thanks for the breakdown – quite helpful! Appreciate it :). Bye!

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