Bad Credit Home Loans
Bad credit is a term used to describe a financial history that indicates previous struggles with managing debt. This includes missed payments on credit cards, mortgages, or other bills, as well as more serious issues such as defaults, bankruptcy, or judgments. These financial setbacks can leave negative marks on your credit report, which lenders use to assess your loan application.
If you've experienced missed payments, it doesn’t necessarily mean your home loan dreams are over. Here's what lenders generally consider when evaluating bad credit:
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Bad Credit History: Adverse listings, such as defaults, bankruptcy, judgments, court writs, or excessive credit enquiries, can raise concerns. However, these issues don’t automatically prevent you from getting approved for a home loan.
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Mortgage Arrears: Lenders may hesitate if you've missed mortgage payments in the past six months. However, if you're now up to date with your payments, securing a loan is still possible.
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Unpaid Bills or Taxes: Outstanding debts like council rates or tax bills are considered by lenders. However, many of these can be explained and resolved through proper documentation, which may help improve your chances.
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Overcommitment to Debt: Lenders may view having multiple existing debts or a negative net worth as risky. However, this doesn’t necessarily rule out the possibility of securing a home loan.
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Company in Financial Trouble: If you’re a director of a company in financial difficulty, it might raise concerns about your personal financial management. However, this doesn’t necessarily affect your personal credit score.
Is Bad Credit a Deal-Breaker?
While bad credit can complicate the home loan process, it’s certainly not a deal-breaker. With the right guidance and a solid strategy, securing a home loan is still very much achievable. This is where Avenstone mortgage brokers can assist. Our team of experts is ready to help you explore your options and find the best home loan package, even with a less-than-perfect credit history.
When it comes to bad credit, it’s essential to know that banks and non-bank lenders may have different criteria. Finding the right lender to suit your financial situation is key.
If you're ready to explore your home loan options despite bad credit, call Avenstone Mortgage Brokers today at (03) 9566 7247 or book our free 30-minute discovery call today. Let us help you secure the best deal for your circumstances.
Differences between Banks or Non-Bank Lenders
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Approach to Risk: Banks are generally more cautious and less willing to take on higher-risk borrowers. In contrast, non-bank lenders are more flexible and open to considering each applicant's individual financial situation.
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Lending Criteria: Banks are stringent in their lending criteria, where a bad credit history often results in denied applications or loans with higher interest rates and stricter terms. On the other hand, non-bank lenders are more lenient, offering specialised loan products tailored for individuals with less-than-perfect credit histories.
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Evaluating Applicants: Banks primarily focus on credit score and past financial missteps when evaluating loan applications. In contrast, non-bank lenders offer tailored loan products specifically designed to accommodate individuals with bad credit, providing more flexibility and options.
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Product Offerings: Banks offer standard loan products with less flexibility, making it harder for individuals with bad credit to secure favourable terms. In contrast, non-bank lenders provide tailored loan products specifically designed to accommodate individuals with bad credit, offering more personalised solutions.
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Perception of Bad Credit: For banks, bad credit is often viewed as a high risk, which can lead to loan denial or stricter loan terms. In contrast, non-bank lenders see bad credit as just one factor in a broader financial context, recognising that past financial issues don’t always predict future financial behaviour.
What is Considered a Bad Credit Score in Australia?
In Australia, a credit score below 500 is generally considered a bad credit score, with scores under 400 classified as very bad. This is significant, especially considering the average Equifax score in Australia is around 550. If your credit score falls into this range, it can affect your ability to secure home loans with traditional lenders, but don’t worry — bad credit home loans are still a possibility.
Don’t let bad credit stand in the way of your dream home. We’ll handle the hard work for you by searching for lenders who specialise in bad credit home loans and presenting you with the best options tailored to your situation.
Bad Credit Home Loan Options for Australians
If you have bad credit, there are still home loan options available to you. Here are the types of loans you might consider:
Home Loans with Defaults
Bad credit home loans for borrowers with defaults on their credit file are commonly available in Australia. Defaults are classified into two categories:
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Paid Defaults: These are defaults that have been paid in full.
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Unpaid Defaults: These are defaults that remain unpaid.
A default appears on your credit file when an account, such as a personal loan, credit card bill, utility bill, or phone bill, becomes overdue by 60 days or more. It is a significant factor in most loan applications, as it indicates a past inability to meet financial obligations. While major banks may decline your application due to defaults, there are alternative lenders who specialise in offering loans to borrowers with this type of bad credit.
For more details on how to secure a home loan with defaults, visit our home loan with defaults page or book our free 30-minute discovery call today.
Tax Debt Home Loans
For borrowers with significant debt owed to the Australian Taxation Office (ATO), tax debt home loans may be an option. A loan of this type can consolidate your ATO debt into your mortgage, providing you with the opportunity to clear your tax debt and manage your finances more effectively.
Tax debt can accumulate due to simple mistakes in tax returns, and in such cases, a loan to clear the debt is often a viable solution.
To find out more about securing a tax debt home loan, book our free 30-minute discovery call today.
Debt Consolidation Home Loans
Debt consolidation home loans are ideal for borrowers who have multiple smaller debts, such as personal loans, credit cards, or car loans, that have become unmanageable. With a debt consolidation loan, you can combine your debts into a single mortgage, reducing your monthly repayments and simplifying your finances.
Debt consolidation home loans allow you to take control of your finances and pay off your debts at a lower interest rate, often helping to improve your credit score in the long run.
If you’re interested in consolidating your debts, visit our debt consolidation loan page or book our free 30-minute discovery call today for more details.
Discharged Bankrupt Home Loans
If you have previously gone bankrupt and are now discharged, there are still home loan options available to you. In Australia, some lenders will consider your mortgage application immediately after your bankruptcy discharge. Being "discharged" means you are no longer bankrupt, and you regain the ability to apply for credit.
Once discharged, you can apply for a loan to purchase a home. While bankruptcy remains on your credit file for several years, it doesn’t automatically rule out home loan approval.
To learn more about home loans for discharged bankrupt individuals, please book our free 30-minute discovery call today.
Part IX Debt Agreement Home Loans
If you have entered a Part IX Debt Agreement and successfully completed it, you may be eligible for a bad credit home loan. A Part IX Debt Agreement is a formal arrangement between you and your creditors to pay off outstanding debts. Once the agreement is completed, you are discharged, and you can apply for credit again.
This debt agreement will remain on your credit file for up to five years but does not necessarily prevent you from obtaining a mortgage. There are lenders in Australia who will consider your application even with a completed Part IX Debt Agreement.
For more information on home loans after a Part IX Debt Agreement, book our free 30-minute discovery call today.
How Much Can I Borrow If I Have Bad Credit?
Your borrowing capacity will depend on the nature and extent of your bad credit history. Here's how different situations may impact your borrowing ability:
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Small Paid Defaults: If you have defaults under $500 that were paid off more than six months ago, you may be able to borrow up to 90% LVR of the property value, and in some cases, up to 95% of the property value.
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Multiple Small Paid Defaults: For paid defaults under $1,000 from financial institutions (such as banks), and under $500 from non-financial institutions (like phone companies), you may be able to borrow up to 85%, or possibly 90%, of the property value.
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Moderate Paid Defaults: If you have up to $3,000 in paid defaults, your borrowing options can vary. You may be able to borrow up to 80% of the property value with a prime lender, up to 90% with a specialist lender, or even up to 100% with a security guarantee from your parents.
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Large Paid Defaults: For defaults ranging from $3,000 to $500,000, your options will be assessed on a case-by-case basis. With a strong explanation and solid evidence, you could be eligible to borrow up to 90% of the property value through a specialist lender.
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Unpaid Defaults: If you have any unpaid defaults, you may still be able to borrow up to 90% of the property value through a non-conforming lender. However, most lenders will require these defaults to be paid off before approving your loan.
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Judgements or Court Writs: If you have judgements or court writs, you may be able to borrow up to 90% of the property value with a non-conforming lender.
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Part IX Debt Agreement and Bankruptcy: For specific guidance related to a Part IX debt agreement or bankruptcy, visit our detailed pages on these topics for more information.
To better understand how these scenarios will impact your monthly repayments, we recommend using our loan repayment calculator to explore your options.
If you have any questions or need further clarification, don’t hesitate to call us on (03) 9566 7247 or book our free 30-minute discovery call today to get started.
Tips to Qualify for a Bad Credit Home Loan
Securing a home loan with bad credit can be challenging, but with the right approach, it’s possible to improve your chances. Here are some expert tips to help you qualify for a bad credit home loan:
Choose the Right Lender
While major banks have strict criteria, non-conforming and specialist lenders often have a more flexible approach to bad credit. These lenders are more likely to take your individual financial circumstances into account, increasing your chances of approval.
Understand Your Credit File
Before applying for a home loan, take the time to review your credit history. Address any negative aspects and work on improving your score. A specialist mortgage broker can provide valuable insights into how lenders view your credit history and help you present it in the best possible light.
Manage Your Finances Prudently
To improve your chances of securing a loan, it’s crucial to manage your finances responsibly. Avoid accumulating more negative listings on your credit file by:
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Paying your debts on time
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Keeping an open line of communication with lenders
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Making partial payments towards debts if you can’t pay in full
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Clearing any existing defaults
Consider Timing
Sometimes, waiting for negative listings to drop off your credit report before applying for a loan can improve your chances of securing better terms. However, if you're ready to buy property and start building equity, acting sooner could be beneficial. Assess your situation carefully, and if you're close to clearing a negative listing, it might be worth waiting a little longer for more favourable loan options.
Seek Professional Advice
If you’re unsure about your credit situation or need assistance with credit repair, consult a professional service like Credit Repair Australia. A mortgage broker can help you understand when it's the right time to apply for a home loan, or whether waiting for your credit to improve could be more beneficial.
Common Mistakes to Avoid When Applying for a Bad Credit Home Loan
When applying for a home loan with bad credit, it's crucial to avoid these common mistakes that can hurt your chances of approval:
Not Checking Your Credit Report
Before you apply for a loan, make sure to check your credit report for any inaccuracies or outdated information. Even minor errors can make your credit score look worse than it is. Addressing these issues before applying can improve your chances of approval.
Applying with Multiple Lenders at Once
It might seem like applying to several lenders will increase your chances, but it can have the opposite effect. Every time you apply for credit, it can slightly lower your score. Instead of applying to multiple lenders, take the time to research your options and apply to the best lender for your situation.
Ignoring Your Current Debts
Keeping up with your current debts is vital. Missing payments or accumulating late fees can damage your credit score further, making it harder to get approved for a home loan. Stay on top of your existing debts and ensure timely payments to avoid further harm to your credit.
Overlooking Loan Terms
It’s essential to fully understand the terms of the loan you’re considering. Don’t just focus on the approval — review the interest rate, fees, and repayment terms. Choosing the right loan is not only about approval; it’s also about finding the best deal for your financial situation in the long run.
By following these tips and avoiding common mistakes, you can increase your chances of successfully securing a home loan, even with bad credit. If you need assistance, don’t hesitate to reach out to our expert mortgage brokers for advice and support tailored to your unique situation.
Ready to talk to someone?
Why Choose Avenstone?
At Avenstone, we understand the unique challenges that come with securing a home loan when you have bad credit. We specialise in helping individuals with less-than-perfect credit histories, ensuring you get the best possible home loan solution tailored to your needs. Here’s why we’re the right choice for you:
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Expertise in Bad Credit Home Loans: We don’t just handle bad credit scenarios — we specialise in them. This means you get access to home loan options that are tailored to your specific situation, no matter what’s in your credit history.
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Nationwide Service: No matter where you are in Australia, we provide access to a wide range of bad credit home loan options, giving you more opportunities to find a solution that suits you.
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Proven Track Record: Our history of securing loan approvals for challenging cases speaks for itself. Even if you’ve been rejected by banks before, we can help you find a way forward.
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Access to Over 40 Lenders: With over 40 lenders in our network, we can offer a broad selection of loan options and competitive rates. We take the time to match you with the lender that best suits your financial needs.
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Free Property Valuations & Credit Reports: To ensure you make the most informed decision, we offer free upfront property valuations and credit reports. This helps you understand your options and feel confident in your application process.
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Commitment to Your Best Interests: We’re legally bound by the Best Interests Duty, meaning your financial well-being is our top priority at every step of the loan process.
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Ongoing Support: Our dedicated post-settlement team is always on hand to assist, advise, and support you long after your loan is approved. We're with you throughout your entire home loan journey.
Our expertise in bad credit home loans has helped countless clients achieve their homeownership goals, even in challenging circumstances. For example, we successfully assisted a client with bad credit in refinancing their home loan, helping them secure better rates and terms.
Ready to take the next step?
Call us today on (03) 9566 7247 or book our free 30-minute discovery call today to find out how we can help you secure a bad-credit mortgage.
Frequently Asked Questions about Bad Credit Home Loans
Do You Have any Questions? We're here to Help!
If you're feeling uncertain about your home loan options, don’t worry — we’re here to help. Our team of dedicated mortgage brokers specialises in bad credit loans, with many years of experience guiding clients through the process.
Many of our senior brokers have worked in the credit departments of major banks, so they know exactly how to build a strong case for your bad credit home loan.
Call us on (03) 9566 7247 or book our free 30-minute discovery call today to get started and learn how we can help you get approved for a bad credit home loan.
Years Experience
20+
in Residential & Commercial Banking