They Thought Their Bad Credit Would Mean No To A Home Loan
When Steve and his wife contacted me about getting a home loan they explained that they had a default with BNZ from a few years ago and this had caused their current bank to decline their loan application, so they held out little hope that we could do any better and had resigned themselves to the fact that their bad credit would remain an issue.
Of course most people think that their bad credit will be a problem, and in some ways they are correct; however it does not automatically mean that they cannot get a home loan.
They Had Three Defaults On Their Credit Report
When you have bad credit and want t home loan it is always better to work with a non bank broker that is experienced in this type of lending.
The first thing we discussed was the defaults;
We did a credit check and discovered that there were in fact three defaults listed with Equifax (previous Baycorp or Veda) – two were with BNZ for $7510 (paid), $ 15,329 (under a payment arrangement) and a small default with Spark.
We then discussed the reasons for the defaults – they were all in 2016 and Steve explained the situation that lead to the defaults. In my opinion is was a genuine reason and he had made a real effort to pay the debts. I had him draft a letter explaining this so I could use this in my finance application as I always believe that it helps the lenders when they are making their decisions. Here was his letter;
I had 2 credit cards BNZ before and they defaulted me on 2 different accounts.
I managed to pay for the smaller one last year and still paying off the other one.
It all started when i was diagnosed with cancer in 2013 and had to undergo multiple surgeries and radio-therapy treatments which made me unable to work. I went back to full-time employment after being cleared of the cancer and started paying them back.
I did explain the situation to the bank at that time but they went ahead to default me with Collection House.
Now that I understood the reasons that the loan application had been declined, I collected the rest of the information so we could get a loan approval for them.
Preparing The Loan Application
When I prepare a loan application we highlight their bad credit right at the outset, and show the lender why they should look at the overall deal and not get stuck on the credit issue.
Due to a past default with BNZ they are unable to get bank finance; hence we are looking for non-bank lending for 3-years at which time the BNZ debt will no longer affect their credit.
Our clients have good savings and would fit the bank criteria if it was not for the default to BNZ. We have attached a letter explaining the cause of the default (cancer / out of work). Also attached is the ANZ affordability calculations and it services okay even without reducing the credit card limits which we could also do to make this a stronger deal; however from their statements they are managed well.
I highlighted the positives;
They had a 20% deposit which in this case was $130,000 so proved that they could save, but also their account conduct in their everyday banking was good.
I showed that without the bad credit they would be able to get bank finance, and we used their own bank calculations (ANZ Bank) to provide this.
How the application is presented is very important, and the single biggest reason that so many loans are declined. Of course almost anyone can apply to lenders and they will all get some success; however if you want to increase your chances of getting your loan approved you should use a specialist mortgage broker.
Success Even With Their Bad Credit
It is important to get the loan application prepared well and to then select the right lender.
Yes, these people had some bad credit and wanted a home loan which would produce a big fat NO with the banks; however when you look at the overall situation a reasonable person would understand they they had an issue in the past and that since then they had managed their finances well.
I also explained that the defaults will only show on their credit checks for 5-years, so in under 3-years they could refinance to a bank mortgage.
The result was a 30-year home loan which enabled them to buy their home, and at a time when they were able to negotiate a good price. The interest rate was high when compared to the banks at 7.95%, but still is not too bad when you consider a few years ago this was a good rate at the banks.
Overall this was a very happy couple who believed that their bad credit would mean they would remain renting.