Bad Credit Home Loans

Don’t let bad credit get in your way.  There are ways to get a home loan with a bad credit history; find out more and compare your options with Savvy.

Last updated by Savvy Editorial Team, Savvy, on August 7th, 2023

If you’ve ever been rejected for a home loan, or even fear applying for one due to your poor credit history, you're not alone.  Hundreds of thousands of Australians each year are at high risk of credit defaults.  However, the good news is that a bad credit score shouldn’t prevent you from being approved for a home loan if you go about your application the right way.  Here Savvy takes a detailed look at home loans for bad credit and helps you compare lenders who like to say ‘yes’ when others have said ‘no.'

What are bad credit home loans?

Bad credit home loans are home loans approved for borrowers who have a poor credit rating or no credit history at all.  They’re provided by online lenders who specialise in lending to customers who other banks reject.  There are many reasons why you may have ended up with a bad credit score, such as paying your bills late or defaulting on a loan.

In Australia, such loans are commonly referred to either as bad credit home loans, sub-prime loans or non-conforming loans.  The term ‘non-conforming’ also applies to people who have just arrived in Australia and don’t have a credit history.  Not all non-conforming loans fall into the bad credit category; these terms can also refer to self-employed people who don’t have the required two years of tax returns or to others who don’t fit within standard credit measurements for any other reason. 

These mortgages are only offered by online lenders specialising in bad credit borrowers, rather than banks and big lenders who offer standard home loans.  They look at loan applications differently from the way that big banks do, assessing loan applications on an individual basis and looking at the person behind the numbers, rather than applying strict across-the-board lending criteria which may trip up many potential borrowers.

How do I get approved for a bad credit home loan?

If your credit score isn’t looking too healthy but you want to buy a home, you have three options: either wait until black marks on your credit history have lapsed, take steps to improve your credit score, or apply to a lender who specialises in bad credit home loans.  Defaults and other negative credit behaviour remain on your credit file for five years, after which time they will expire and be removed. Lenders will look far more favourably at a loan application if defaults (unpaid bills) have been paid or resolved.

If you do decide to apply to a lender specialising in bad credit home loans, the application process will be similar to applying to any other home loan lender.  You’ll need to provide details to prove your ID, plus proof of your income, your outgoings, your assets and your liabilities.  Online application processes are usually quite simple and very user-friendly and can often be completed in under 30 minutes.

Will I have to pay a higher interest rate if I have a low credit score?

Yes – bad credit home loan specialists are prepared to take on a higher risk by approving loans to people with a lower-than-average credit score.  Therefore, they do need to charge a higher interest rate to cover their increased risk.  The lowest interest rates in Australia are offered to those borrowers who have the highest credit rating, or to those who can offer a large deposit or substantial home equity from a guarantor as security for their loan.

Top tips to help you get your home loan approved

Demonstrate you can save

Lenders will want to see a record of your savings history, so you can prove that you genuinely have a history of being able to save additional money towards your home loan.  It’ll look better on your loan application if you have a separate savings account that you’ve contributed to regularly, so a potential lender can see that you’re able to save money with your current financial commitments.

Gather all your documents and make sure they're in order

Make sure you submit a high-quality application by making sure all your documents are clear, the utility accounts are in your name only, and you provide all the documentation that your lender requests.  Missing or incorrect documents will just delay your home loan application and will reduce your chances of application success.  A home loan application that doesn’t need any further follow-up and meets all the stated lending criteria stands a far higher chance of being approved than one which has documents missing or in the wrong name.  

Get your credit report and check for inaccuracies

Everyone in Australia is entitled to see a copy of their credit report once every three months.  It’s well worth going online to the three major credit reporting companies in Australia and asking for a copy of your credit report so you can check the information held under your name is accurate.  If you do find incorrect information, you should contact the credit reporting company and ask for your record to be corrected.  You may have to provide proof that the disputed details are incorrect. 

Take steps to improve your credit score

Once you have a copy of your credit report, you’ll know what your credit score is.  You can work to improve your score by paying off all your credit cards in full and reducing your credit limits (as they reduce the amount you’re able to borrow).  Close any store lines of credit you may have such as ‘buy now pay later’ arrangements which you don’t need, as well as betting accounts.  Pay off any personal or car loans you may have if you want to see an immediate improvement in your credit score.

Frequently asked questions about bad credit home loans

Will I be able to get additional loan features like an offset account with a bad credit home loan?

Yes – many bad credit home loans in Australia will still come with extra features such as offset accounts, redraw facilities and other interest-reducing strategies available.

Will I have to pay a higher interest rate for the rest of my life due to my bad credit history?

No – if you get approval for a bad credit home loan and make all your loan repayments on time for two or three years, you’ll be in a stronger position to refinance your home loan with a traditional lender and find one with a lower interest rate and lower or even no application fees.

Can first-time buyers get approved for bad credit home loans?

Yes – first-time homebuyers are no different from any other borrowers as far as lenders are concerned.  They will still be considered for first-time homebuyer loans with bad credit in Australia.  You can also apply for any first-time homebuyer grants, concessions and stamp duty relief packages that may be available in your state.  If you’re a young first-time homebuyer with bad credit, or even no credit history at all, you may have to approach a specialist lender who offers non-conforming home loans to get your first home mortgage, and then refinance with a standard lender to get a lower interest rate down the track once you’ve got a reasonable credit history behind you.



How will a bad credit rating affect the deposit I’ll need?

The standard deposit required for a home loan is 20% of the purchase price of the property you’re hoping to buy if you wish to avoid paying Lenders Mortgage Insurance (LMI). This is an insurance premium which the borrower pays to protect the lender in case of loan default.  It’s based on the size of the loan and can amount to thousands of dollars.  Bad credit home loans can be up to 95% of the value of the home to be bought, meaning you’ll only need to find the remaining 5% as a deposit in many cases.  The higher the deposit you’re able to provide, the lower the interest rate you’re likely to be offered.

I have good credit but my partner doesn’t. How will this affect our loan application?

If you are planning to borrow jointly, this will affect your ability to access prime interest rate loans, as lenders will rate the loan application on the credentials of the borrower with the lowest credit score.   You could choose to apply for your loan as a single borrower, but this will limit your total borrowing power.  Use Savvy’s borrowing power calculator to see how one income on your application changes how much you can borrow as compared to applying jointly.

Can I use a bad credit mortgage to consolidate my other debts?

Yes – in some circumstances, if you’re already a homeowner you can use a bad credit home loan to consolidate other, more expensive debts through refinancing.  You can do this by accessing the equity you already have in your home, using it as security to get a larger loan and consolidating other debts.  To calculate the free equity you may have in your home, work out 80% of the value of your home and subtract the amount you owe on your home loan from this value.  The result is your usable home equity.

Do I have to have a guarantor when I apply for a bad credit home loan?

No – you don’t necessarily have to have a guarantor to get a bad credit home loan, but if you do have a family member who is prepared to act as a guarantor for you, it will certainly help add weight to your loan application and improve your chances of getting home loan approval. Guarantor home loans typically require a smaller deposit than other home loans and can be a great way to convince a lender to approve a loan for you, even if you have a poor credit score.

What documents could assist me as part of my bad credit home loan application?

The documents that may assist you to get approval for a home loan include:

  • bank statements showing a positive balance and evidence of savings
  • personal references from your employer or people you work with
  • paid bills showing payment received on time
  • character references from other community members
  • tax returns showing reasonable and steady income over several years
Can I get a mortgage if I'm bankrupt or under a Part IX debt agreement?

Whilst you are still in your bankruptcy period you are not permitted to apply for a home loan.  You’re permitted to apply for a home loan three years and one day after your bankruptcy declaration.

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