Bad Credit Home Loan Australia — Can You Still Buy a House in 2026?

Quick Answer: Yes, you can get a home loan with bad credit in Australia — but the financial cost is severe. Specialist "non-conforming" lenders will approve borrowers with defaults, but rates run 2–5% higher than standard loans. On a $600,000 mortgage over 30 years, that difference costs between $80,000 and $220,000 in extra interest. For most Australians with a removable default, spending 30–90 days fixing their credit file before applying is the single best financial decision they can make.

A home is the biggest financial commitment most Australians will ever make. And for people who've had credit problems — a default from years ago, a debt that got out of hand, a disputed utility bill that somehow ended up on their credit file — the fear that their past will permanently close the door on homeownership is real and devastating.

Here's the truth: bad credit won't necessarily stop you from getting a home loan. But it will cost you. Often massively. And in many cases, the default that's causing the problem can be removed — turning a bad credit mortgage into a standard one and saving tens or hundreds of thousands of dollars over the life of the loan.

This guide covers everything you need to know.

What "Bad Credit" Means to a Mortgage Lender

When a mortgage lender assesses your home loan application, they're running a far more detailed assessment than a car loan or personal loan lender. The stakes are higher for both parties — you're borrowing hundreds of thousands of dollars — so the scrutiny is proportionally intense.

Here's specifically what mortgage lenders are checking beyond your credit score:

Defaults are the single biggest barrier to home loan approval. Major banks — Commonwealth Bank, Westpac, ANZ, NAB, and St George — have largely automated credit assessment systems with hard rules: any default on your file in the last five years triggers a decline at most of them. Full stop. There's no "we'll look at it case by case" at the big four for defaults. The computer says no.

The type and age of the default matters to specialist lenders. A telco default from four years ago is treated very differently to a mortgage default from last year. Small defaults (under $1,000) are treated more leniently than large ones. Paid defaults are marginally better than outstanding defaults. Specialist lenders assess these nuances — the big banks largely don't.

Court judgements on your credit file are treated as seriously as defaults. A judgement indicates a creditor pursued you through the court system — a significant red flag for a mortgage lender.

Multiple credit enquiries in a short period — particularly if they include multiple mortgage applications — suggest to lenders that you've been shopping desperately for finance, which raises risk flags.

Genuine savings history matters more for home loans than any other product. Lenders want to see 3–6 months of consistent savings behaviour, not just a lump sum. First home buyers in particular need to demonstrate the financial discipline to save before a lender will trust them with a 30-year mortgage.

Your deposit size is critical with bad credit. Standard loans require 10–20% deposit. Non-conforming lenders with bad credit borrowers often require 20–30% — and charge Lenders Mortgage Insurance (LMI) on top. A larger deposit reduces lender risk and can sometimes offset a minor credit issue.

Your Real Options for a Home Loan With Bad Credit

Option 1 — Non-Conforming / Specialist Lenders

These lenders specifically service borrowers who don't meet mainstream bank criteria. In Australia, the main players include Pepper Money, Liberty Financial, Bluestone Mortgages, and La Trobe Financial.

They will approve borrowers with defaults — but the terms reflect the risk:

• Interest rates typically 1.5–5% higher than standard variable rates
• Larger minimum deposit requirements (often 20–30%)
• Higher fees and establishment costs
• Some require you to demonstrate 12 months of clean credit behaviour after the default before applying

The product is legitimate and serves a genuine purpose. But the cost over a 30-year mortgage is staggering — which is why we dedicate a full section below to showing you the real numbers.

Option 2 — Fix Your Credit First — Then Apply for a Standard Loan

If your default can be removed — and many can, when reviewed by an ASIC-licensed credit repair specialist — you go from being a non-conforming borrower to a standard borrower. This single change can mean:

• Access to the big four banks and their competitive rates
• Potentially saving $80,000–$220,000 over 30 years in interest alone
• Lower LMI costs or no LMI requirement
• Faster approval, lower deposit requirements
• A mortgage product that's actually sustainable long-term

The question isn't whether fixing your credit is worth it before buying a home. The question is whether your credit file has anything that can be removed. That's what a free ACS assessment tells you — at no cost and no obligation.

Option 3 — Use a Specialist Mortgage Broker

A specialist mortgage broker who works with non-conforming lenders knows exactly which lenders will consider your specific profile and which won't. Rather than collecting mortgage refusals — each of which adds an enquiry to your file — a broker can identify the right lender before a formal application is lodged.

Look for a broker who is ASIC-licensed (check the ASIC register), has experience specifically with non-conforming lending, and who doesn't charge upfront fees.

Option 4 — Family Guarantee (Parental Guarantee)

If your parents own property with equity, they can act as guarantor for a portion of your home loan — typically the deposit component. This arrangement, sometimes called a "family pledge" loan, allows first home buyers to avoid LMI and borrow up to 100% of the purchase price while a parent's property provides security.

Most lenders who offer this product do still check your credit file — it's not a bypass of the bad credit issue, but combined with other factors it can sometimes be the difference between approval and refusal.

The Real Numbers: What Bad Credit Costs on a Home Loan

This is where it gets confronting. Let's look at a realistic scenario.

Scenario: $600,000 home loan, 30-year term, principal and interest

The difference between an excellent credit home loan and a bad credit non-conforming loan in this example is $365,920 over 30 years — more than half the original purchase price of the property paid in additional interest.

Even comparing good credit to bad credit — a single percentage point rate difference — costs an extra $313,920 over 30 years on a $600,000 loan.

No default removal service costs anywhere near that. Not even close.

Real Case Study: Sarah's Default Was Removed and She Got Her Home Loan Approved

Sarah, 36, from Sydney, had been saving for a home deposit for four years. She had $95,000 saved — a 16% deposit on a $600,000 property. When she applied for a home loan, every major bank declined her because of a $1,100 default listed by Commonwealth Bank from 2021 — a disputed credit card debt she'd been in conversation with the bank about at the time it was listed.

She was quoted 8.9% p.a. by a non-conforming lender. Over 30 years on her loan, that rate would have cost her approximately $412,000 in interest — $280,000 more than the standard bank rate she'd been trying to access.

A mortgage broker recommended she speak to Australian Credit Solutions before accepting the non-conforming offer.

Our team reviewed the listing and found that Commonwealth Bank had listed the default while Sarah's formal dispute was still open and unresolved — a direct breach of the Credit Reporting Code.

We lodged a formal Privacy Act dispute on her behalf.

Result: Default removed in 52 days. Sarah's Equifax score moved from 487 to 731. She reapplied to Commonwealth Bank and was approved at 6.19% p.a. Total interest saving over 30 years compared to the non-conforming quote: approximately $268,000.

Can You Get a Home Loan With a Default in Australia?

Yes — but the pathway depends entirely on the nature of the default.

Small defaults (under $1,000) — some second-tier lenders will consider home loan applications with minor defaults, particularly if the default is paid and more than 12 months old. Interest rates will still be elevated but may be closer to standard rates than full non-conforming products.

Large defaults (over $1,000) — automatic decline at all major banks. Specialist lenders will consider them but at full non-conforming rates.

Paid defaults — better than outstanding but still visible and still damaging. Paying the debt doesn't remove the listing.

Multiple defaults — significantly harder even with specialist lenders. Most will require a longer period of clean credit behaviour after the last default before approving.

Defaults that can be disputed — this is the game changer. If a default was listed in breach of the Privacy Act 1988 — wrong amount, missing notices, disputed debt, identity fraud — it can be removed entirely. A removed default doesn't exist on your file. You apply as a clean credit borrower.

The critical question is always: can this default be removed? That's what a free ACS assessment answers.

First Home Buyers With Bad Credit — Special Considerations

First home buyers with bad credit face a particular challenge: not only are they dealing with the credit issue, but they're also trying to access government first home buyer schemes that have their own eligibility requirements.

The First Home Guarantee (FHBG) — the federal government scheme allowing eligible buyers to purchase with a 5% deposit without LMI — requires participating lenders to approve the application. Most participating lenders are mainstream banks with credit file requirements. Bad credit borrowers are unlikely to qualify until their file is clean.

First Home Owner Grant (FHOG) — the state-based grant doesn't have a credit score requirement itself, but it's paid after settlement. You still need a lender to approve your home loan first.

Bottom line for first home buyers: if you have a default on your file and you're saving for a first home deposit, start the credit repair process now. Even if you're 12–18 months away from having enough deposit, removing the default during that savings period means you enter the market as a standard borrower with access to every lender and every scheme.

Read more: Credit Repair for First Home Buyers →

How to Improve Your Chances of Home Loan Approval With Bad Credit

1. Check your credit file at all three bureaus. Know exactly what's on it before any lender does. Free guide here →

2. Get a free assessment on any defaults. Before accepting a non-conforming rate, find out if the default can be removed. Free ACS assessment →

3. Stop applying. Every declined mortgage application adds a hard enquiry. Three mortgage rejections in a month makes you look like a desperate borrower. One is already bad. Get your credit sorted before you apply again.

4. Build genuine savings history. Lenders want to see 3–6 months of consistent savings in the same account — not a large transfer in the month before you apply. Start building that history now.

5. Reduce your existing debt load. Pay down credit cards, close buy-now-pay-later accounts, reduce your overall debt-to-income ratio. This improves your serviceability assessment even with bad credit.

6. Use a specialist mortgage broker — find ASIC-licensed brokers at asic.gov.au or use MoneySmart for independent guidance. One who works with non-conforming lenders and understands your specific situation. The right broker saves you from accumulating rejections.

7. Wait if you can. The longer the default ages — and the more clean credit behaviour you demonstrate after it — the easier approval becomes with specialist lenders. A 3-year-old paid default is treated very differently to a 6-month-old outstanding default.

Frequently Asked Questions

Can I get a home loan with a default in Australia? Yes — through non-conforming specialist lenders like Pepper Money, Liberty Financial, Bluestone, and La Trobe. However, rates are 1.5–5% higher than standard loans, which can cost $100,000–$300,000+ in extra interest over 30 years. If the default can be removed first, you access standard lenders at standard rates.

What credit score do I need for a home loan in Australia? Major banks generally require an Equifax score of at least 600–650, with better rates for 700+. However, the score itself matters less than what's specifically on your file. A single default will cause automatic decline at most major banks regardless of your score. Non-conforming lenders look beyond the score to the nature and age of the credit issue.

How long do I have to wait after a default to get a home loan? With non-conforming lenders, some will consider applications 12 months after the default date, particularly if it's been paid. Major banks typically require the default to have fallen off your file (5 years) before approving a standard home loan — unless the default can be removed earlier through a successful dispute.

Can a paid default stop me from getting a home loan? Yes. Paying the debt changes the default status from "outstanding" to "paid" but doesn't remove the listing. Most major banks still decline applications with any default — paid or unpaid — that's less than 5 years old. The only way to access major bank rates while the default is within its 5-year window is to have it removed through a successful Privacy Act dispute.

Is it worth using a non-conforming lender to buy now vs waiting to fix my credit? This depends on your timeline, the removability of your default, and property market conditions in your area. As a general rule: if your default can be removed in 30–90 days, waiting and fixing it first almost always makes more financial sense than the six-figure interest premium of a non-conforming loan. Run the numbers with your mortgage broker.

Can a mortgage broker help with bad credit home loans? Yes — a specialist broker who works with non-conforming lenders is invaluable if you have bad credit. They know which lenders will consider your specific situation, preventing the cycle of applications and rejections that accumulate enquiries and make your file look worse. Find an ASIC-licensed broker with specific experience in non-conforming lending.

How does a default affect my home loan deposit requirements? Standard home loans require 5–20% deposit depending on the lender and LMI arrangements. Non-conforming lenders with bad credit borrowers typically require 20–30%, and LMI may still apply on top. A larger deposit is one of the strongest tools available for improving approval odds and rate with specialist lenders.

Before You Accept a Non-Conforming Rate — Do This First

A five-minute phone call or 60-second online assessment could tell you whether that default blocking your home loan can be removed. If it can — and in the majority of cases we accept, it can — you're looking at potential interest savings of $80,000 to $300,000 over the life of your mortgage.

Australian Credit Solutions is ASIC-licensed (ACL 532003), lawyer-led by Principal Solicitor Elisa Rothschild, No Win No Fee with a 98% success rate on accepted cases. We've helped over 5,000 Australians get their credit files clean and access the home loans they deserve.

Get My Free Assessment → 📞 0489 265 737 🛡️ ASIC Licensed ACL 532003 | ⭐ 4.9/5 from 976+ Reviews | 🏆 Award Winner 2022–2024

Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute financial or legal advice. Home loan rates quoted are illustrative only — actual rates vary by lender, loan size, and individual circumstances.

Related reading: Credit Repair for Home Loan Approval → | Default Removal Services → | Credit Repair for First Home Buyers → | Bad Credit Personal Loan →