Bad Credit Finance Advice

Hi everyone, my name is David. Im new to this forum, and to property in general.

My wife and I have recently decided to take the first home buying plunge (at 39 and 43 respectively!) but have come across a serious hurdle: I have a bad credit mark against my name from 2013. It's an outstanding credit card debt, which had gone into default, and which I've just paid.

I've spoken to my mortgage broker who has advised that we might only be able to get a "3rd tier bank" loan. Specifically he mentioned Peppers. My research so far has revealed their interest rates are very high, which I was advised (by my broker) would be the case: because we're a "higher risk”.

We are both casually employed in the arts industry, but consistently earn roughly 55-75K per annum. We have a great savings history, and no other defaults, we pay all of our bills, rent, etc on time. We also have close to 20% deposit (which depends on the size of the mortgage required, which depends on the property price). Essentially, aside from the one black X on my credit file, we're a good risk!

We have a property in mind, which we really, really want, that goes to auction on June 18.

My questions are:

Should we consider a loan from one of the few companies that would deal with clients like us? And who, of those, would you recommend?

Should we hold off entirely from buying until the black mark gets wiped from my credit history, in 2018?

Should we hold off considering the current property jitters and future outlook?


I’ve searched these forums, and the net in general, and Peppers gets pretty good customer reviews (for all of their loan products), but also had a lot of complaints (mostly customer service related). Confusing!

So, in summing up, we’re really wanting to buy this house, but I don’t want to make a bad decision. We’re not desperate. Well, kind of!

Thanks for reading, and for any advice.

Regards,

David

 

thanks for your response Rolf. What do you mean by negotiate to have the mark removed? When I paid the debt today, the credit debt company said they would have a "paid in full" entered into the credit report...

 

It's not really black or white. Good credit or bad. There's degrees in between.

Lenders' aren't going to look favourably on a credit card default, but depending on the circumstances and the amount, they might be willing to overlook it. You're probably not going to be able to qualify for a 95% loan any time soon with a mainstream lender, but an 80% loan might still be possible.

The amount of the default, how long ago it was dealt with, your conduct since then and how much deposit you've got may mean that you might still be able to get a (much cheaper) loan from a more mainstream lender.

It might be very worthwhile to get a second opinion on this. Make sure you've got a pre-approval in place before bidding at an auction.

 

I recommend signing up to veda

 

Yes, I have signed up. I obtained my credit report through Veda. That's how I found the bad credit. It also lists the number of times a debt recovery agency accessed my file. 16 times over 3 years! So, despite me not knowing the debt existed, or receiving any correspondence from the bank or the debt recovery agency, I can't do anything about those.

 

If the property means something to you then what is a small increment on interest rate worth? When your credit is clear in a few years time then look to switch to a major bank.

I've got no issue with a liberty or pepper..

 

Thanks for the lengthy response Peter. That's interesting to hear. And makes me a little more hopeful. I will be getting a second opinion.

The debt was registered (on my credit history) in 2013, but I only paid the outstanding amount today. So I suspect a bank looking at me more favourably for dealing with it so late would be less likely.

I'm reticent to apply for a loan for fear it may get rejected and that show up as a hit on my credit history. Would a broker, a very good one, be able to tell me whether or not I would be able to get a loan without actually applying to the lender?

Thanks for your input.

 

Different banks have different policies on what they will and won't accept on your credit history.

How much is the default? If it's only a few hundred dollars and your don't need LMI I would be confident you could get a mainstream lender. The broker should actually talk to the bank before putting the application in and check they are happy with the situation. I do it all the time!

 

Simon, that has given me the most hope Ive felt all day! Thanks for your reply.

The debt, as it appears on my credit report is Payment Default of $813. Coincidentally, I paid the debt recovery agency over $1200 today. The loan amount were going for would mean we would probably need LMI. But, if it meant we could get a low rate, mainstream loan, we'd go for a lower amount. Are you Melbourne based?

 

Another credit enquiry on your credit file isn't a big deal, especially with the elephant in the room, with your default.

As the debt is under $1,000 you might be able to get a loan under 80% with a mainstream lender. Many have a policy of being able to consider small utility defaults under this amount. However yours is a credit card default which is more serious.

I wouldn't discount pepper or Liberty/bluestone. The rate will be higher, but it's not forever. After 6 or 12 months your chances of refinancing to a mainstream lender are much better and in 2018 your credit file will clear entirely.

 

We usually discuss this sort of deal with lenders before we put an application to them. Realistically though, if the default is less than $1000 it's probably not as bigger deal as many think.

At 80% I know a few lenders will likely disregard the default completely. If the rest of the application is strong, there's lenders that would look past it up to 90%.

The non conforming lenders (Pepper, Liberty, Bluestone) would be able to fund it to 85% or 90%, but I'd be looking around a bit more first.

 

This. The default will be removed in (I think) 2018 or is it 2021? If its 2018 then not that far away really.

 

I personally think punishments for defaults are way too severe, in terms of increased rates etc. maybe 1% but not 4-5%+

we all make mistakes, especially paid off defaults,

 

Being a debt to another financial institution won't help but i am sure you would be able to get the rate down to less than the Pepper rate.

In saying that i am not sure i would be bidding at Auction on such a deal.

Cheers


Richard

 

With these default situations requiring specialist loans/lenders - it's important to look at it from a longer term view. These products are certainly more expensive, but they're meant to provide you with an option to get into the door, then move on once your credit is in a stronger position. This is to the point that lenders actively promote it - a 2 year proposition, not 30 years of 2%+ rates.

Being a lender based default this will be a lot less desirable for lenders - generally any telco, utility/small debt ~1k can be put through certain mainstream lenders.

 

Thanks everyone for your input. It certainly has been eyeopening and educational, and not the least bit nerve-wracking and deflating! But, after getting a second opinion, there may just be light at the end of the tunnel. I should know in a few business days where I stand. The tricky part seems to be the LMI, and trying to avoid it.

Thanks again folks. Will keep this thread updated for future minor defaulters!!

 

I can share my experience. I moved an did not know I had a unpaid rates in one of my rental properties. I was oblivious to a court order against me to a total of about $4000 until aplied for a loan. Payed off the loan that same day and got a letter from their lawyer saying all debt are cleared. Gave the letter to bank of melb approved for 90%. Then refinance with anz , they didn't even asked. Again applied another loan with nab again I need to explain and give the letter and again approved for 90%. This was last year though. Yours should be fine with the main lenders assuming lending changes only affect foreign incomes.