1. Can you afford the loan you are applying for?

If you have just made an application for a car loan , a personal loan or a home loan, it may well be that your income is not sufficient in the eyes of the lender to qualify you for the loan. You can run your scenario through a “how much can I borrow” calculator online to see even approximately if your income is enough to qualify you for the loan;

2. Do you have some bad credit history or excessive loan inquiries?

You can perform your own credit check online for free to see what a potential lender sees when you make a loan application.

www.mycreditfile.com.au is the site to visit for a free credit check.

Note that if you approach others to run a credit check on your behalf it may adversely affect your chances of qualifying for a loan. Most lenders will decline an application if you have unpaid defaults. judgements, bankruptcy or even too many loan inquiries on your credit report.

Bad credit should not prevent you from qualifying for a secured loan but you will need to approach second tier lenders – your banks is unlikely to accept such a loan application.

3. Have no financials to substantiate your income?

While you may qualify for a low doc home loan or a low doc car loan, there is no such product as a low doc personal loan.

Therefore if you have some bad credit, and you are looking for an unsecured bad credit low doc personal loan – unfortunately such loans simply do not exist.

Figures released to the market yesterday show that mortgage arrears were down to 1.42% of all home loans in September, after being recorded in May this year at 1.77%.

Fitch Ratings believe that greater stability in the interest rates is mostly responsible for this decline.

While overall home loan arrears and default levels improved in all states, localities still doing it tough included Sydney’s south-western suburbs, the NSW Central Coast and the Gold Coast in Queensland.

The south-west of Western Australia was likewise still among the regions with higher delinquencies, and tourism destinations in coastal locations were increasingly in arrears.

Banks caved to pressure from the consumers and the Treasury last week when they finally announced their decision to pass on the Reserve Bank’s 25bp cut. Non-bank lenders have also done the same, making most variable home loans offered in Australia another quarter of a percent cheaper.

Liberty Financial announced it would cut 25bps off its variable home loans, taking the rate on its basic home loan to 6.49%.

Liberty Financial national sales manager John Mohnacheff said that the rate reduction is expected to benefit the deflated property market and generate more interest in non-bank home loans.

“With credit growth and consumer confidence both down, this change will create momentum and set the scene for an improved outlook in 2012,” he said.

FirstMac and Australian First Mortgage have also announced that they will pass on the full 25bp cut. AFM’s move will bring the rate on its 95% LVR full doc home loans to 6.49%.

Second tiers have also followed the Reserve Bank move, with AMP Bank and Westpac subsidiaries St. George, BankSA and Bank of Melbourne announcing 25bp cuts.

Borrowers with a history of bad credit but with equity in property may wish to consolidate unsecured debts into their mortgage. In doing so you may find that your monthly repayments are reduced significantly. Naturally to qualify for a mortgage refinance at an increased amount you must be able to demonstrate loan affordability.

If you are not a home owner but own a motor vehicle outright or perhaps a boat or a motorbike, you could use the equity in these assets to apply for a secured personal loan for debt consolidation. Value of your asset must exceed the amount that you wish to borrow.

If you have some history of bad credit, have no assets and are looking to consolidate unsecured debts – you may also wish to consider a debt agreement. To qualify for a debt agreement you must have at least $8,000 in unsecured debts (this can not include your home loan or car loans). If you have previously had a part 9 agreement or were previously bankrupt you will not qualify.

According to the latest arrears report from Standard & Poor’s, home loans underlying Australian prime residential mortgage-backed securities (RMBS) that are greater than 30 days in arrears fell to 1.69 per cent in June 2011 from 1.81 per cent in March.

The decline in the levels of home loan arrears indicate signs of recovery.

Ms Chaplin said she expects arrears to fall even further over the coming quarter as the Reserve Bank’s 25 basis point rate cut begins to filter its way through to home owners.

“This was evident when the RBA cut the cash rate from 7.25 per cent to 3 per cent over seven months from September 2008 to April 2009.

A new study shows that between 2001 and 2009, 20% of home owners in Australia had decided to sell up and go renting. This is double the figures in the UK.

More than 50% of these subsequently returned to the property market, buying a cheaper property with a smaller home loan, however many others went on to apply for public housing and continued to rent.

The Royal Melbourne Institute of Technology survey was based on the housing histories of thousands of Australians over nine years.

It found that former owners who did not return quickly to the property market were more likely to enter public housing or qualify for Commonwealth rent assistance than long-term renters.

It seems that the lack of housing affordability with escalating property prices and escalation costs of home loans are largely to blame for this trend.

During 2011, Australia has taken the unenviable title as the second most unaffordable housing market in the world.

Australia featured eight of the top 20 markets in which housing is ranked as being “severely unaffordable”, according to the 7th Annual Demographia International Housing Affordability.

The survey found that Sydney was the world’s second most unaffordable city, Melbourne sixth and Adelaide 18th.

The remaining capitals all feature in the top 50 with median house prices more than six times the average salary compared to the accepted international standard of three times annual income.

Furthermore Australia has suffered from a very high increase in mortgage defaults in recent months.

Investment services firm Moody’s said the rate of mortgage holders nationwide failing to meet their repayments rose from 1.36 per cent to 1.67 per cent between March and June.

Meanwhile, the number of homeowners facing mortgage stress jumped to 25 per cent last month from 21 per cent in June, mortgage insurance provider Genworth Financial said in its monthly Homebuyer Confidence Index.

Rental vacancies have declined to 1.8 per cent from 1.9 per cent, it reported.

This is certainly something the RBA should give some serious attention to when considering their future interest rate strategies.

The report shows that the proportion of home loans in default – where borrowers are behind on their repayments by 90 days or more – has gone up  from 1.36 per cent in March last year to 1.67 per cent at the end of June.

While house values have declined significantly in Victoria, Moodys had found that the most affected areas were in Queensland, NSW and WA.

There is certainly evidence of the two-speed economy, said Moody’s senior analyst Arthur Karabatsos.

Borrowers in the less affluent areas with a high proportion of their income going towards their home loans are the most affected.

In Western Australia’s non-mining areas, price rises for food and utilities took a heavy toll.

In other negative reports, a NAB survey of industry players found that house prices have fallen 2.4 per cent across Australia this quarter.

Victorian house priced declined the most during the current quarter. Things are expected to get worse before showing some improvement.

CommSec economist Craig James described it as a “dead cat bounce” in what was the weakest housing sales market in a decade.

And a report released by RP Data revealed that nationwide, 7.7 per cent of houses bought since 2007 are now worth less than their purchase price.

Many home owners as well as owners of investment properties are now experiencing equity crisis with more than 300,000 homes nationally today worth less than their owners paid for them.

That includes almost 100,000 homes bought since the onset of the global financial crisis in early 2008, many of which were first homes purchased with the assistance of federal and state grants.

Queensland has been hardest hit by declining home values, with about one in seven homeowners sitting on paper losses, according to RP Data’s analysis of the difference between the price of the property at purchase and today, but not homeowner debt.

The worst regions were far north Queensland, the Gold Coast and the Sunshine Coast.

One in 10 homes in Western Australia are now worth less than their owners paid for them, with the southeastern region dragging down the state’s overall figure.

People are almost offended when we com back with an explanation that due to their credit default they will need to have a deposit of at least 10% and in some cases even 20%. We get to hear…”what..$80,000 deposit…this will never happen. Well the deposit requirements are simply the lender’s way of insuring their loan against mortgage arrears or defaults. The lender must be secure in the knowledge that if you default again they have sufficient equity in your home to sell it and cover their costs. Is it really so unreasonable? We think not.

No it is not possible to consolidate your debts into a home loan if you are relying on the first home owner grant for your deposit. The days of the grant being sufficient as a deposit are long gone. How can any responsible lender offer you a loan of $400,000 to buy your home and another $30,000 on top to consolidate your debts if all the home you are buying is worth is $400,000? If you have paid defaults on your credit report and you wish to purchase a home for $400,000, you can count at best on a loan of $360,000 and possibly only $320,000 – the difference needs to come from you.

Under the recently introduced National Credit Code all lenders must hold a credit license as do all brokers. It would constitute irresponsible lending in the eyes of ASIC is someone offered you a home loan without a deposit when your credit history is far from clean.

Protect your credit history and then you too will be able to qualify for the cheap home loans offered by mainstream lenders with low deposits. Bad Credit Home Loans by their nature are more expensive and do require  deposit.

New data from Standard & Poor’s found home loans underlying Australian prime residential mortgage-backed securities that are greater-than-30 days in arrears eased to 1.80 per cent in May 2011, from 1.83 per cent a month earlier.

The mortgage arrears levels seem to have stabilized, with only marginal movements between May and April,” Standard & Poor’s credit analyst Vera Chaplin said.

A significant improvement in mortgage arrears may not occur until we see an overall improvement in the economic conditions in Australia.

Home loans held by the self employed on a low doc basis continue to be the most affected by financial pressures. Although the Low Doc Home Loan SPIN has dropped to 5.79 per cent from 5.88 per cent during the same period.

According to Fitch Ratings, home owners who are 30 or more days behind on their mortgage payments will will remain at approximately 1.75 per cent for the rest of the year.

This forecast is based on recent estimates issued by the RBA that rates are likely to remain at current levels for the next few months.

In the minutes of its July meeting, the Reserve Bank warned that mortgage arrears rates had gone up among home buyers who had purchased their homes during the property price peak periods, particularly in Western Australia and Queensland.

RBA believes that home loan arrears are the fault of lenders who did not follow sufficiently strict lending guidelines.

Fitch associate director James Zanesi said higher interest rates had put home buyers in difficulty.

Of course the recent spate of natural disasters has had an unexpected financial impact on many Queensland and Victorian families.

“ While Fitch does not believe that natural disasters such as the December/January floods have been the main factor in the rise in delinquency rates in Queensland, the ratings agency cannot exclude that natural disasters might have indirectly contributed in terms of regional unemployment and increasing cost of living,” he said.