Not every borrower has an unblemished, perfect credit record required to qualify for the stringent requirements of a regular home loan. This is where other forms of home loans like alternate documentation loans and near-prime loans come to the rescue. Here’s a look at what are near-prime loans and how they can help borrowers.
What are near-prime loans?
As the name suggests, a ‘Near Prime’ home loan is specifically designed for borrowers with ‘Near Prime’ or less than perfect credit credentials. Any borrower who gets turned away from a standard home loan with a low credit score can consider applying for a near-prime loan.
When should a borrower consider a ‘Near Prime’ home loan?
As mentioned earlier, ‘Near Prime’ loan applicants are usually borrowers that have a low credit score which could happen due to reasons like
- Delayed or missed loan repayments – this could be for a borrower’s home loan, car loan or credit card bill
- Late bill payments – utility, phone, internet
- Apply for too much credit in a short period – e.g., too many vehicle loans, credit cards etc.
- Being late on ‘purchase now and pay later’ bills, e.g., Afterpay
- Shifting you balance on multiple credit card- or in other words getting a new card to clear previous card debt
- Court order from lenders to whom the borrower owes money
- Ignoring a bad credit report- borrowers should pay attention to their credit score and take steps to rectify it at the earliest.
How is a ‘Near Prime Loan’ different from an ‘Alt-doc loan.’
Both ‘Near Prime’ and ‘Alt-doc’ loans are designed to help borrowers that don’t qualify for a regular home loan, but the reason for ineligibility is different.
- ‘Near Prime’ loans are for borrowers with a low credit score
- An ‘Alt doc’ loan is an alternative for borrowers who can’t provide adequate income proof.
What should you look for in a ‘Near Prime’ Home loan?
The lowest interest rate option is not always the best option. Here’s a list of features of a good ‘Near Prime” Home loan.
- Competitive Rate: ‘Near Prime’ loans have a higher interest rate when compared with regular home loans as borrowers with less than perfect credit are perceived to be riskier to the lender. However, the interest rate of a home loan should never be the only deciding factor.
- Loan features: Features like an offset account, redraw facility, and the flexibility to make bigger and more frequent payments can help the borrower pay off the mortgage faster and save on overall paid interest.
- Turnaround time: opt for a lender with a reasonable turnaround time so that the borrower doesn’t miss a good property deal while waiting for the home loan.
- Eligibility: Since the circumstances of each ‘near prime’ borrower are unique, it’s best to go with a lender that can provide individual attention to each case, thereby improving eligibility chances.
In addition to competitive rates, Resi ‘Near Prime’ Home loans have excellent turnaround times and features. Click HERE to reach us for a conversation.