What Credit Score Do You Need to Get a Home Loan?Your credit score, also known as Equifax Score, is used by your potential lender to determine the risk of offering a loan to you. This is an automated rating system and based on your credit file as well as the information you have provided in your application. Show
It is not easy to determine the specific credit score you need to achieve to qualify for a home loan, mainly because most Australian lenders don’t publish their credit criteria. Furthermore, most lenders don’t depend solely on your credit score to assess your risk. Rather, they also use their own credit evaluation alongside your Equifax Score. Even though there is no definitive range to surely qualify for a home loan, Equifax has benchmarks that you can use as reference so you have an idea if your score can make the cut.
How Is Credit Score Calculated?Your credit score is calculated by Equifax based on the information filed in your credit report at a specific point in time. There are several important contributing factors that are considered in calculating your credit score. This includes the type of credit provider, the type and size of credit requested in your application, the number of credit enquiries and shopping patterns, directorship and proprietorship information, age of credit report, pattern of credit enquiries over time, personal details, court writs and default judgements, and more. To learn more about how Equifax calculates your credit score, you can visit the company’s official website. Home Loan for Australians with Below Average Credit ScoreIn Australia, bad credit home loans are offered by non-conforming Home Loan lenders. In this type of special loan, all circumstances are considered, and applications are evaluated on a case to case basis. These loan providers are generally helping people with a bad credit rating with another chance to gain control of their finances. In fact, industry statistics indicate borrowers who have successfully applied for bad credit home loans have lower default rates compared to borrowers with clear credit. Express Mortgage Market is a bad credit expert who can consider most non-conforming loan scenarios, whether for refinancing or purchase. For inquiries, call Express Mortgage Market on 1300 663 997 or send email to [email protected] Share this post?*Affiliate links below - WeMoney may receive a commission when you click on our affiliate links to our partner sites. Terms and conditions apply to the offers listed on this page can also be found at the end of this page. Credit scores— are just a three-digit number, right!? It sounds very simple but are they? Speaking of truth, understanding the ins and outs of maintaining a good credit score, especially for home loans, can be a complex undertaking. Yes, and you might wonder why is that? Well, because society is becoming increasingly dependent on credit scores for almost every financial decision they make. For instance, when buying a car or a house! Plus, it is lender’s number #1 pick when it comes to assessing your ability to repay a loan on time. Not trying to scare you, but did you know that nowadays, credit health and debt history can even impact non-financial life, such as selecting your dating partners!? So it's an obvious fact that a good credit score is crucial for the best of both worlds in determining your financial health, borrowing power, relationships, and whatnot. Let's get to the business, shall we? What is the lowest credit score to buy a house? Which category are you currently sitting at? Before we dive into the average credit scores for recent homebuyers, the logical step would be to check
the minimum credit score for a mortgage in 2021 and how it can impact you buying a house. If you are wondering exactly that, then there are two key things to note! - First is, it depends on the type of mortgage. For example, not everyone is looking to buy a house or an investment property. Perhaps you’re looking to renovate your home and wish to borrow money for this reason. In this case, you can either apply for a home equity loan or a home equity line of credit to finance the money
you need to complete your renovation. The next thing is the uncertainty associated with minimum credit score to get a home loan in Australia, as most lenders don’t publish their credit criteria externally. As a result, the minimum credit score required for a home loan can differ depending on who you apply with. For example, every bank have their own scoring systems. Commonwealth Bank, for instance, has a five-tier credit scoring system:
Other major banks like NAB or Westpac have their own scoring models, meaning there is no one magic number that 100% secures a home loan. As a result, it’s quite impossible to say with confidence that if you pass with one lender, you will definitely pass with all others! Now that you are aware of the above two key
factors, you can start preparing yourself for the next step, which is the most common conditions lenders look for to determine whether you even qualify for a loan.
Wait! Wondering what does DTI ratio mean and how can it benefit your credit rating? Well, in general, the DTI ratio tells how much of your monthly gross income goes toward paying debts, which indicates how much you spend on your recurring debts and liabilities. These include credit cards, existing loans, tax debt, etc. That is why the lower the DTI ratio, the better it is. Plus, the lenders usually look for no more than 40 to 43% of your monthly gross earnings in Australia. This is because they often believe these borrowers with a small debt-to-income ratio are more likely to manage monthly payments successfully. Therefore, if you have a low credit score, then a low DTI can work in your favour and give the lender more confidence to offer you the loan. What credit score do I need to get a home loan? Again, always remember your credit score represents your ability to repay a loan on time and as for in Australia, your scores will be somewhere on the scale between Zero and 1,000 or 1,200. Zero means poor, 1,000, or 1,200 (also known as perfect score) means excellent. But that’s just the tip of the iceberg! You must be obviously eager to find out whether your score can get you your dream home, isn't it? As such, there are three major types of credit bureaus in Australia, and each of them calculates their scores differently. Take a look at these benchmarks below, and then compare them to your own credit score to find out where you stand. Illion: The overall range is 0-1000 where 0-299 is low, 300-499 is fair, 500-699 is average, 700-799 is very good, and 800-1000 is excellent. Experian: The overall range is 0-1000 where 0-509 is low, 510-621 is fair, 622-725 is average, 726-832 is very good, and 833-1200 is excellent. Equifax: The overall range is 0-1200 where 0-549 is low, 550-624 is fair, 625-699 is average, 700-799 is very good, and 800-1000 is excellent. Nevertheless, it’s extremely rare to see scores higher than 900 or lower than 200, not saying it’s impossible to get over 900. Still, if you manage to get a score as high as 900, our award winning partner, NOW FINANCE, Australia's leading go-to personal loan provider to help our members improve their financial wellness. Yes, you can get a range of Australia's leading loan products such as:
Not only do they have loans with attractive
interest rates but also flexible payment plans starting from 18 months up to 7 years. Guess what? There is no fees attached + getting a quote won't hurt your credit score too! How cool is that? WeMoney eligible members can also get a free rate quote and enjoy rates as low as low as 6.95% (6.95% Comparison Rate*) for excellent credit. If you are keen to explore,
get your personalised quote now. Nevertheless, if your credit rating falls below 500 for Experian & Equifax and below 300 for Illion, you are considered a high risk to get approved for a home loan. And there is no way you can guarantee a loan at this minimum point. You can still keep hoe on some credit providers because they may still consider granting a
home loan with this score (read the next section for more info), but usually, it comes with a price, which in this context I mean at a significantly higher interest rate. Thus, good scores show lenders your capacity to repay a credit card, business loans, or home loans. In contrast, bad ones can demonstrate you might be a higher risk and could result in extra interest charges, getting knocked back, or, worst case, your loan application being rejected. Can I get a home loan with a bad credit let’s say with a 550 credit score or lower in Australia? Having trouble getting a home loan with your bad credit? Yes– it is possible to get a loan with a bad credit score, but
again this will come at a cost! The first thing to be mindful is that the big banks are unlikely to consider your application – even if you have a strong legitimate reason. However, as gloomy as it may sound, there is still room for hope. Even with bad credit that is as low as between the 450-550 range (or refer to the above section on poor credit score on each credit type), you can still root for an alternative option known as the bad credit mortgage. It’s basically a financial instrument
offered by more than 150 home loan lenders in Australia, both: non-conforming or specialist lenders specifically for consumers who don’t quite meet the threshold for a standard home mortgage. This brings us to the next question! What is the difference between a traditional mortgage and a bad credit mortgage? Similarities are their application procedures! You make a down payment, obtain a mortgage, and then make regular repayments on the loan’s principal and interest. There are a few differences, though - With the traditional method per se, it is almost impossible to get a loan if you have late payments on a credit card, a credit default, bankruptcy, or more. Because lenders use a potential borrower’s current credit score for evaluation. So, any black marks a lender finds on a credit history report indicate that the borrower is at a higher risk of missing a payment or defaulting on the mortgage. On the other hand, just because a potential homebuyer has a low credit score, that doesn’t immediately disqualify them for a mortgage. Lenders still want to ensure that people can achieve homeownership, even despite bad credit history. This is where a bad credit home loan comes to the rescue. Take a look at some of the typical features of what a bad credit home loan includes:
By receiving a bad credit mortgage and then making regular on-time payments, borrowers with poor credit can even boost their credit scores over time. Likewise, if you manage this loan well for a few years, you can refinance and move over to a big bank. Note: while all of them are happy to offer ‘prime’ mortgages, only a small minority are willing to provide bad credit mortgages. How is the credit score calculated for a home loan? And, can I improve my credit score using this information? Important factors behind your credit rating. Understanding your credit score and how it affects home buying contains a huge amount of the following data that the lenders use to assess your financial situation objectively. Moreover, the information provided in this section will also serve as a checklist to help you
keep your credit report healthy. For example, you can make amendments wherever it is needed to restore, maintain and/or improve your credit score. Let’s check it out! 1. Your Credit (Repayment) HistoryAccording to Australia's comprehensive credit reporting requirements, here are 10 pieces of information that will be recorded on your credit file and, thus, try avoiding these harmful habits that can negatively hurt your credit rating.
So if you are currently facing a bad credit situation, you can overcome the adverse event by offsetting unhealthy accounts for your credit rating. For example, if you pay bills late, start making sure all of your next repayments are on time or figure out a way to ensure you do not repeat the
mistakes you made in the past. 2. Your relationship with the bankIf you even miss one or two payments let’s say in the last 12 months, this alone is enough to result in your loan being declined. 3. Stable livingIf you have been living less than six months at your current address, or working in the current job for less than six months, then you are most likely to end up with a poor credit score. 4. Asset & liabilities positionEither you should be someone who has a large sum of money in your saving accounts or a high income earner with a considerable amount of assets. Otherwise, again you will have a poor credit score. Likewise, if you owe more debts than assets, you most certainly will fail the banking scoring system. 5. Loan to value ratio (LVR)The Loan to Value ratio (LVR) is the amount of your loan compared to the value of your property. LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $250,000 and you have a deposit of $50,000, the LVR will be 80%. ($250,000-$50,000)÷$250,000 = 80%. Therefore, if you’re borrowing more than 90% LVR then you will need to be in a strong financial position to pass the bank’s credit score. 6. Loan size & loan purposeLarger loan sizes are typically higher risk than smaller loan sizes. For example, having a high loan amount may not hurt your credit, but it could raise your debt-to-income ratio and lead to denied loan applications. For this reason, if you’re borrowing over $1,000,000, then it will be more difficult to get a loan as lenders will be highly skeptical about granting you one. In addition, the most common loan purposes ranked from the lowest to the highest risk are purchasing a home, purchasing an investment property, refinancing,
business purposes, consolidating debt and undisclosed purposes. 7. Borrowing powerMortgage brokers view people who can easily afford the loan as being a much lower risk. As a result, use Commonwealth bank’s borrowing power calculator here to see if this will be a problem for you. Otherwise, you can use another mortgage calculator by any bank of
Australia. Considering the above, if you're in any financial trouble regarding a home loan approval, without further ado, talk to a credible financial advisor to help you out. Are you struggling with mortgage repayments due to COVID-19? Struggling with mortgage repayments due to COVID outbreak? At the same time, ABA members and other players are communicating these financial assistance packages independently, with many announcing changed circumstances for personal and business financial products. They include waiving fees on early term deposit withdrawals, interest rate
freezes on loans, options to defer or restructure home loan repayments, and emergency credit card limit increases. So if you want to save your credit rating, avoid failing the lender's credit criteria, or need any support on home loan repayments, check out the site here! You can also select your bank to find out what hardship support options are available. End of story: Monitor your credit score and improve your financial health Grab your free credit score check |