Bankruptcy can be life-changing, but it doesn’t mean you can never get a home loan.
Bankruptcy is not designed as a punishment. It is more like a financial “reset button.” It is there to help Australians who, through no fault of their own, find themselves in a position where they will never be able to repay their debts.
This means that once your Bankruptcy has been discharged you can start building a brand new finanical life.. and leave the past behind
Here are some ways you can still buy a home despite being a discharged bankrupt…
Save up for the deposit
As a discharged bankrupt, you can purchase with a fairly wide range of lenders if you have a deposit of 20% or more and obtain an 80% LVR loan. This rings especially true if you wait for at least two years after being released from bankruptcy.
You could then use that waiting period to build up a good credit score by paying your bills on time, managing a sound budget and having a stable employment as proof to lenders that you are in a stable situation.
Can a discharged bankrupt apply for a home of more than 80% LVR?
While some lenders will be more guarded about lending to people with less-than-perfect credit history, there are specialists with a client focus on discharged bankrupts and people with other similar conditions. These lenders who will lend up to 95% LVR of the value of the property, even if you have only been discharged for just one day.
Of course, you will also need to be able to fund the cost of the risk fee for the lender and the purchase costs like Stamp Duty, solicitors fee and building & pest inspection.
With that in mind, you probably need to put together somewhere between 7% & 9% of the purchase price of the property as a cash deposit.
Resist the temptation to apply for several loans.
Remember, every loan application is recorded on your credit history. Multiple applications in a short period can lead to automatic declines from lenders – after all, if you make multiple applications in a brief span of time, you have by definition been rejected by a few lenders already.
It may be inevitable that lenders would reject your application based on your insolvency past. Don’t fret, and instead of going in blind, use a specialist mortgage broker with a good track record and reputation to do the leg work for you so that you are ensured a better & swifter outcome
What about cashflow considerations?
Interest rates are an important consideration and for ‘ex-bankrupts’ as they most certainly are not as low as those for people who do not have credit history problems.
So you need to consider whether getting the home loan now with a higher rate makes financial sense and fits your budget. When looking at these considerations also keep in mind that the higher rate is not forever and you will have the ability to switch to a lower rate once 20% equity has been established in the property, and/or you have been discharged from Bankruptcy for more than two years.
What type of property can you buy?
Generally, as a discharged bankrupt you can buy an established dwelling to live in or as an investment. You can also buy a newly completed dwellings however generally you will be unable to build until you have enough equity to obtain finance with a lender who will approve your loan application for a total loan amount of 80% or less of the completed property’s value.
In essence, loans of this type are made available to people who have suffered a life changing event. After all the mechanism of Bankruptcy is to allow those who found themselves in a financial corner – unable to wiggle their way out of that predicament – to press the “RESET”button and get a fresh start.
So as a discharged bankrupt there are available options to purchase property again, without having to come up with an enormous deposit, speaking with an experienced mortgage broker who deals regularly with people who have credit history problems is an absolute must to increase your chance of success.