When was the last time you asked your partner about their credit history? If you’re like most people the answer is probably, never. It’s not really something you bring up on a first date – not if you want a second one.
Despite this, credit history can be very important, especially when you’re applying for a home loan together. It’s then that the skeletons in your or your partner’s closet can make a real difference. For example, a default on a loan for a hot pink vespa scooter can make obtaining a home loan almost as difficult as explaining to your partner why you bought a hot pink vespa scooter. There are, however, some things you can do to make things easier. With that in mind, here are our five top tips for getting a home loan when your partner has bad credit.
Tip 1: Save longer for a larger deposit
This won’t be possible for everyone. Many home loan applicants subsist on 2 minute noodles and instant coffee for years just to make a 5% deposit. So, if your financial position doesn’t allow for a larger deposit, simply move on to tip 2.
However, if you do have the option of holding off and saving for a while longer, it may be worth doing so. A larger deposit, saved over an extended length of time, demonstrates your and your partner’s ability to repay your financial commitments. By showing lenders that you’re both on the right track now, you can minimise the impact of your past bad credit. Calculate how much you can save here with our calculation tools.
Tip 2: Reassess your property goals
Owning a house in a trendy suburb can be great, particularly if you like coffee made from organic, fairtrade beans. However, buying in the inner-city can mean significantly higher prices. And that’s not the $4.80 it costs for a flat white.
So, think hard before you apply. Ask, what is most important to you and your partner. Now consider how those things fit in with your property goals. Depending on your situation, all, some, or none of the following will be essential when choosing a property.
- Proximity to good schools
- Access to public transport for work
- Space for extended family or entertaining
- Investment potential/resale value
By focusing on what you (really) want, and by sacrificing the non-essentials, you may be able to find a more-affordable or lower-priced property. Simply put, the cheaper your chosen property, the further your deposit will go, and the more likely your loan application will be accepted.
Tip 3: Speak to a finance broker
While it may be tempting to rethink your choice in life partner, there is a simpler solution, one that doesn’t require any broken-hearts. A finance broker is a specialist in loans and finance. They can help individuals to seek out a home loan, even if they have bad credit and even if they’ve been turned down elsewhere. So, if you’ve been denied a loan by the big lenders because of your partner’s credit history, speak with a finance broker. They may be able to help.
Unable to get a loan because of bad credit? A finance broker may be able to help.
Tip 4: Show that you are financially stable
Demonstrating financial stability doesn’t mean exchanging your overalls for a tie and collar. It doesn’t mean owning a fancy calculator or boasting about your ‘five year plan’. It simply means, showing your lender that both you and your partner are in control of your finances and that you are both capable of honouring your financial commitments.
You can show this by:
- Being consistently employed
- Staying in one property for a length of time
- Presenting three months of ‘clean’ bank statements – no overdrafts!
- Paying off any existing defaults
Lenders are more likely to accept your application if you can prove that you and your partner are financially stable. So it’s best to get your finances into the best shape possible, before you start applying to lenders.
Tip 5: Find a co-signer
Does someone owe you a favour? A really big favour?
A co-signer is someone who already owns a property outright and who is willing to go on your loan as an additional borrower. The lender uses the co-signer’s property as security against your loan. The co-signer is traditionally a relative, a parent, aunt, uncle, or grandparent. But they can also be a friend or someone who owes you a (huge) favour. The risk, however, is that should you default on your loan, your co-signer’s property can be seized.
A good option when applying with a co-signer is to reassess your financial position 12 – 18 months after taking out your loan. If at that time, you can refinance, you may be able to remove the co-signer from your loan.
While it can be difficult to get a loan when your partner has bad credit, it is not impossible.
Author: Rapid Finance provides industry leading finance options for Australian businesses, families and individuals. For more articles, including customer advice and car reviews, click here.