This couple have a bad credit history and are wondering whether they should apply for a non-conforming loan or wait until their finances are improved.

Q My wife and I are finding it hard to get a home loan because we are perceived to have a bad credit history. About four years ago we defaulted on our home loan and were forced to sell our house. The bank listed the default four days before they received full payment. We begged the bank to remove it, but it refused.

At the moment we are renting, have about $40,000 saved and are not entitled to any assistance from the government. Both my wife and I are in stable jobs with decent salaries.

Should we apply for a non-conforming loan now and pay a higher interest rate or should we wait for the next three years until our finances are better?

A First of all, non-conforming loans cost more, both in terms of establishing the loan and the interest rate you pay. Usually, you will need to have a deposit saved ?10 per cent of the loan amount is typical.

It may be in your best interests to hold off for a while and save a bigger deposit before jumping into the property market. If you have saved more than 20 per cent of the purchase price, you usually do not have to pay lenders' mortgage insurance ? a saving of a few thousand dollars.

Non-conforming loans can be a great way to get a foothold in the property market, but they do not suit everyone and you really need to look at your finances to determine whether you can afford to pay a home loan at a higher interest rate.

Keep in mind, you might not be able to borrow as much as you could with a mainstream lender so it may limit your purchasing power and the type of property you can buy if you take a non-conforming loan.