If you're looking to get a mortgage but you fall into the "non-conforming borrower" category, what can you do to give yourself the best chance of being approved?
Before the GFC, it was relatively easy to get a home loan in Australia. In fact, most borrowers could access up to 95% or even 100-105% of the value of the home they were buying, without too much hassle.
Then the credit crunch hit, and Aussie banks and lenders went into damage control by restricting their lending criteria to all except the most low-risk borrowers.
“It’s tough qualifying for a home loan in today's tight lending market, but it's even tougher for the estimated one in four aspiring home owners or existing borrowers who, for various reasons, don't fit mainstream lenders strict lending guidelines,” confirms property and finance expert Peter Boehm, co-founder of Top Choice Home Loans.
“The hard line that banks and other mainstream lenders – and their mortgage insurers – are taking on even the smallest misdemeanour makes it near impossible for those with even a small blemish on their credit file to get finance.”
Who is a non-conforming borrower?
Any borrower who falls outside a mainstream lender's credit guidelines is known as a non-conforming borrower. They’re generally seen as a higher lending risk, which is why they may find it more difficult to get a standard home loan.
According to Boehm, you may be considered to be a non-conforming borrower if you:
- Are self-employed
- Recently started a business
- Have a tax debt
- Have made lots of applications for credit
- Have saved up little or no deposit
- Regularly change jobs/have no job stability
- Have many other debts such as personal loans and credit cards
- Are nearing retirement
- Are a new Australian resident, and therefore can't verify your previous credit history
- Have been previously been refused credit
What are your options?
Your best bet is to approach a qualified mortgage broker that has experience in sourcing and providing non-conforming loans.
But before you do, head to www.mycreditfile.com.au to download a free copy of your personal credit history. Check it carefully to make sure all of the entries are accurate.
“If there are any problems or errors, contact the credit reporting agency immediately and get them corrected, and pay off any overdue accounts as soon as possible,” Boehm says.
“Although they won't immediately be removed from your file, they'll be shown as ‘paid’ which may help get you get a better deal.”
When you apply for your loan, don’t try to hide anything from the lender: as well as being unlawful, it’s important that you give a true and full account of your financial situation so that you don’t wind up with a loan that you can’t afford to maintain.
And finally, shop around. “There are a number of specialist mortgage brokers and lenders to choose from, so go online to see what's available,” Boehm says. “Ask questions and look for the best deal by assessing the non-conforming lender as you would any other lender. Take a step back and reflect on what you’re being offered, and remember – you don’t have to sign up for the first deal you get.”