The problem with having bad credit is that it sticks on your credit report for up to five years. So even if the credit issue was three years ago, you may still have another two years where it shows up on your credit report and that can be an impediment to getting a bank mortgage.
It can be frustrating because you don't really want to wait for two years before purchasing a home.
Firstly, that means it'll be two years later before you pay your home off, but also if you wait two years what might the price of the house be?
Lots of people are talking about house prices increasing, and you could easily see the price of the house being 10% higher within two years.
So what are the options?
Non Bank Lending
One option is using a non-bank lender that is not as pedantic about your credit score. But the problem with a non-bank lender is they do charge a higher interest rate.
And this is where Pro Fund Me can assist.
With Pro Fund Me, you can buy a new build built for you and get 10% of the purchase price funded with a 30-year mortgage at just 1% interest. That makes a huge difference, especially if you're using non-bank funding for the balance, which is going to have a higher interest rate.
I did an example last week for a client.
They were looking at purchasing an $800,000 property and had a 10% deposit but unfortunately due to some poor credit from three years ago, the bank was not willing to provide a home loan for them.
We looked at getting a mortgage with a non-bank lender and of course, with a 10% deposit, they needed to borrow 90%. While we could get the mortgage for them, the interest rate was 8.90% and so with a mortgage of $720,000 at 8.90%, their weekly repayments were going to be about $1,325.
What we managed to do instead was look at a combined mortgage with the same lender, but using the Pro Fund Me option with just 1.00% fixed interest rate.
Firstly, because the lender was only lending to 80%, they could give a discounted interest rate, which was down from 8.90% to 7.65%. We're still borrowing the same $720,000, but we're only borrowing $640,000 from the main lender and using the additional $80,000 from Pro Fund Me and this substantially brings down the cost.For the main $640,000 at 7.65%, you're paying approximately $1,050 per week and for the 1.00% on the other $80,000 it's another $60.So that's $1,150 weekly compared to $1,325.So a significant savings. The actual average interest rate they're paying is reduced to 6.91%, which is very close to any bank rate, especially if you add a low equity margin that banks often chare because you have less than 20% deposit.
That's A Good Option!
So in summary, you could either wait for two years until the credit is clear and look to buy through a bank or you could go now with your 10% deposit and get the fund it through a non-bank lender.
But as we've shown another option (which is definitely worth looking at) is purchasing a new build, getting the funding to 80% from the non-bank, with the additional 10% of the purchase price being funded through Pro Fund Me.
You will end up with a pretty affordable mortgage, and you'll always have the option of refinancing to a bank when your credit is clear.
Maybe it's time to look seriously at how Pro Fund Me might help you get into your new home for 2025.
What's Next?
As mentioned when you're buying a first home it can be a real benefit to get into the market early, before prices increase.
You want to have a look at the options that Pro Fund Me might allow you, then get pre-approved so that when you do go shopping for your new home you can move quite quickly when you see the one that is perfectly suited.
