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Bad Credit Home Loans

Even with bad credit, a home loan is possible. We have access to lenders who understand your situation.

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Updated: 07 Nov, 2024
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This page is for Australians who currently have a bad credit file and need a home loan.

Understanding Bad Credit

Missed a payment on a bill, credit card, or mortgage? You’re not alone. Bad credit is a term that reflects a financial history marked by challenges, such as late payments, defaults, or even bankruptcy. These incidents can impact your credit report and influence how lenders assess your loan applications. While it may seem like a setback, understanding your credit profile is the first step toward rebuilding financial opportunities.

Missed payments recorded on your credit file can catch the attention of lenders, but they don’t have to spell the end of your homeownership goals. Here’s what lenders typically classify as bad credit:
A bad credit history: Adverse listings like defaults, bankruptcy, judgements, court writs, or excessive credit enquiries can raise concerns, but they don’t automatically exclude you from getting a home loan.
Unpaid bills or taxes: If you have outstanding debts like council rates or tax bills, lenders take these into account. However, these can often be explained and resolved.
Mortgage arrears: Lenders may be cautious if you’ve missed any payments on your mortgage in the last six months.
Company in financial trouble: If you’re a director of a company that’s in financial trouble, this might raise flags about your personal financial management, though it doesn’t necessarily reflect poorly on your personal credit history.
Overcommitment to debt: Having too many debts or a negative net worth. This may concern lenders but options are still available to help you secure a home loan.

Bad credit can make the home loan process more challenging, but it doesn’t have to be a roadblock. With the right support and a clear plan, owning a home is still within reach. That’s where Sunrise Finance WA mortgage brokers come in. As trusted partners, they bring their expertise to explore tailored options and guide you toward the ideal home loan package, even if your credit history is less than perfect. When it comes to bad credit, banks and non-bank lenders often approach loan applications differently:

Aspects

Banks

Non-Bank lenders

Approach to risk

Conservative, risk-averse

More flexible, willing to consider individual circumstances

Lending criteria

Stringent; a bad credit history often leads to denied applications or loans with higher interest rates and stricter terms.

More lenient; offers specialised loan products for those with less-than-perfect credit histories.

Evaluation of applicants

Focus primarily on credit score and financial missteps.

Consider the broader financial narrative, not just the credit score.

Product offerings

Standard loan products with less flexibility.

Tailored loan products designed to accommodate individuals with bad credit.

Perception of bad credit

Often viewed as a huge risk, potentially leading to loan denial or stricter loan terms.

Seen as a factor within a broader financial context, acknowledging that past financial issues don’t necessarily predict future financial behaviour.

What Is Considered A Bad Credit Score?

In Australia, a credit score below 500 is considered bad credit, and a score under 400 is viewed as very bad, especially given that the average Equifax Score is around 550.

Break Free from Bad Credit and Step Into Your Dream Home.

We take care of the hard work, connecting you with lenders who specialize in bad credit home loans and providing you with the most suitable options.

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Bad Credit Home Loan Options

Home Loan With Defaults

These types of bad credit home loans are offered to borrowers who have defaults on their credit file. In Australia, lenders generally divide defaults into two categories:

Paid defaults: Defaults that you’ve paid in full.
Unpaid defaults: Defaults that you haven’t paid in full.

A default is a record on your credit file that shows that you have an overdue account such as a personal loan, credit-card bill, utility bill or phone bill. It’s classed as being overdue if the payment is 60 or more days late or if the lender has been unable to contact you.

Having a default on your credit file will likely get you declined with most major banks, as this is a sign of your inability to pay your debts.

For more information about this type of bad credit home loan, please complete our free online assessment form.

Discharged Bankrupt Home Loan

These types of bad credit home loans are offered to borrowers who were bankrupt and are now discharged. There are lenders in Australia that will lend you money to buy a property the day after your bankruptcy is discharged.

‘Discharged’ is a legal term that means a person has been released from bankruptcy. Once you are discharged, you are no longer bankrupt and no longer required to have limited assets and no overseas travel. It also means that you’re able to apply for credit again.

For more information about this type of bad credit home loan, please complete our free online assessment form.

Part IX Debt Agreement

These types of bad credit home loans are offered to borrowers who entered a Part IX Agreement and have completed the agreement. In Australia, if you can’t pay your debts, you have the option of seeing a debt agreement administrator who can help you prepare a debt agreement between you and your creditors or lenders. Once the debt agreement is fulfilled, you’ll be discharged from the agreement.

A Part 9 agreement will appear on your credit report for five years from the start date of your agreement. This can sometimes be longer and may affect your ability to obtain credit.

There are lenders who will consider your mortgage application if you have a completed Part IX Agreement on a credit file.

For more information about this type of bad credit home loan, please or complete our free assessment form.

Tax Debt Home Loan

These types of bad credit home loans are offered to borrowers who have a large debt with the Australian Taxation Office (ATO). Generally, the ATO debt is added to the mortgage, leaving the borrower clear from any ATO debt.
ATO debt is actually common. It can be easy to make a mistake on your tax return and this can come back to bite you years later.
For more information about this type of bad credit home loan, please complete our free assessment form.

Debt Consolidation Home Loan

These types of bad credit home loans are offered to borrowers who have a number of small debts that have become unmanageable. In Australia, most people choose to roll multiple forms of unsecured debt such as personal loans, credit cards and car loans, into their mortgage, creating one simple, lower monthly repayment.

For more information about this type of bad credit home loan, please complete our free assessment form.

How Much Can I Borrow If I Have Bad Credit?

Here’s how different scenarios might affect your borrowing capacity.

Small Paid Default: With defaults under $500 paid over six months ago, you could borrow up to 90% LVR, or in some strong cases, up to 95% of the property value.
Multiple Small Paid Defaults: If you have under $1,000 in paid defaults from financial institutions (like banks), and under $500 from non-financial institutions (like phone companies), you might be able to borrow up to 85%, or possibly 90%, of the property’s value.
Moderate Paid Defaults: With up to $3,000 in paid defaults, borrowing options can vary. You could 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.
Large Paid Defaults: For larger paid defaults ranging from $3,000 to $500,000, options are assessed on a case-by-case basis. A strong explanation and solid evidence can lead to borrowing up to 90% of the property value with a specialist lender.
Unpaid Defaults: If you have any unpaid defaults, you can borrow up to 90% of the property value with a non-conforming lender, though many will require the defaults to be paid before approving the loan.
Judgements Or Court Writs: If you have any judgements or court writs, then you can borrow up to 90% of the property value with a non-conforming lender.
Part IX Agreement And Bankruptcy: For specific guidance related to a Part IX agreement or bankruptcy, please refer to our detailed pages on these topics.
If you have any questions, feel free to call us on 0862430351 or complete our free online assessment form.

Options For Interest Rates On Bad Credit Home Loans

Getting a home loan with bad credit usually means facing higher interest rates, as lenders see it as more of a risk. The exact rate can change depending on how your credit looks, the lender, and what’s happening in the market. Here’s a simple breakdown of what you need to know about interest rates for these kinds of loans:
Fixed-Rate Loans: With this type, your interest rate doesn’t change for a certain time. This can be great for planning your budget because you know exactly what you’ll pay each month. But these rates might start off higher than variable rates, especially for bad credit loans.
Variable-Rate Loans: These rates can go up or down based on the market, so your payment can change over time. This might give you a lower rate to start, but there’s the risk that it could go up later.
Loan Duration: The length of your loan can also influence the interest rate and the total amount you’ll pay over the life of the loan. Shorter loan terms typically mean higher monthly payments but lower total interest over the life of the loan. Conversely, longer loan terms spread out the repayments, making each instalment smaller but potentially increasing the total interest paid.

Tips To Qualify For A Bad Credit Home Loan

Choose the Right Lender

While major banks have stringent criteria, non-conforming and specialist lenders often adopt a more understanding approach towards bad credit.

Understand Your Credit File: Familiarise yourself with your credit history and take proactive steps to mitigate any negative aspects. Engaging with a specialist mortgage broker can provide insights into how past debts are viewed and how to position your financial history positively.

Manage Your Finances Prudently

Avoid accruing additional negative listings on your credit file. Tackle financial hardship by:

Paying your debts on time.
Maintaining open communication with lenders.
Making some payment, even if not the full amount, towards your debts.
Clearing any existing defaults.

Consider Timing

Sometimes, waiting for negative listings to clear from your credit report before applying for a loan can be beneficial. However, purchasing property earlier might be advantageous in terms of building equity. Assess the situation carefully, and if you’re close to clearing a negative listing, it might be worth waiting to access better loan terms.

Seek Professional Advice

If you’re unsure about the best course of action or need assistance in repairing your credit, professional services like Credit Repair Australia can offer valuable guidance. Our brokers can help you understand when it’s the right time to apply or if it’s better to wait for an improvement in your credit score.

Common Mistakes to Avoid When Applying for a Bad Credit Home Loan

When you’re applying for a home loan with bad credit, it’s important to be extra careful to avoid common slip-ups. These mistakes can make it harder to get your loan or affect your finances in the long run. Here’s what you should watch out for:

Mistake 1: Not Checking Your Credit Report

Before you start, take a close look at your credit report. Sometimes, there are mistakes or old information that could make your credit look worse than it is. Fixing these can help your application look better to lenders.

Mistake 2: Applying With Multiple Lenders At Once

It might seem like a good idea to apply to lots of places to increase your chances, but this can actually backfire. Every time you apply, it can knock a few points off your credit score. It’s smarter to do your homework, compare different lenders, and choose the best one for your situation.

Mistake 3: Ignoring Your Current Debts

Keep up with your existing debts, like credit-card bills or other loans. Missing payments or paying late can hurt your credit score even more, making lenders less likely to approve your home loan.

Mistake 4: Overlooking Loan Terms

Make sure you understand everything about the loan you’re considering. This includes how much interest you’ll pay, any fees involved, and how you’re supposed to pay it back. Don’t just jump at the first approval you get; the details matter a lot.

Why Choose Sunrise Finance WA?

At Sunrise Finance WA, we understand the unique challenges that come with seeking a home loan when you have bad credit. Here are more reasons why you should consider us as your trusted partner in securing a bad credit home loan:

We’re not just familiar with bad credit scenarios; we specialise in them, ensuring you get optimal home loan solutions, regardless of your credit history.
Wherever you are in Australia, our nationwide service ensures you have access to bad credit home loan options.
Our track record speaks volumes, with a history of securing approvals for challenging loans, even if you’ve faced bank rejections before.
With over 60 lenders at our disposal, we navigate through numerous loan options to secure rates that fit your specific situation.
Benefit from free upfront property valuations and credit reports, aiding in a more informed and safer loan application process.
Our legal commitment under the Best Interests Duty ensures that your financial well-being is always our priority.
Our post-settlement team is always on standby, ready to assist, advise, and support you throughout your home loan journey.
Our expertise extends to assisting clients with bad credit. Learn how our team skillfully assisted a client with bad credit in refinancing their home loan. Call us on 0862430351 or complete our free online assessment form and find out how we can help you get approved for a bad-credit mortgage.

Confused? Speak to us!

We have a team of dedicated bad credit mortgage brokers with many years of experience.
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 bad credit home loans.
Call us on 0862430351 or complete our free online assessment form and find out how we can help you get approved for a bad credit mortgage.

FAQs About Bad Credit Home Loans

Which Lender Can Help Me?

Specialist lenders, also known as non-conforming lenders, are far more flexible than major banks. These lenders recognise that people with bad credit are looking for a second chance at a happy life.

Here’s a list of the top five lenders specialising in bad credit home loans.

Besides them, the non-conforming lenders that we deal with are:

Bluestone Mortgages
Liberty Financial
Pepper Money
AusWide Bank (Formerly Widebay Australia)
Adelaide Bank
La Trobe Financial
Resimac
RedZed Lending Solutions
MKM Capital

If you currently have a bad credit home loan, you can refinance with a non-conforming lender when:

You owe 80% or less of your property’s value
Your defaults are no longer showing on your credit file
You’ve paid off your defaults
You have full income evidence
You’ve made all of your repayments on time in the last six months.
Your name, date of birth, current address, previous address, driver’s licence number, employer and previous employer are information stored on your credit file.
All the loans that you have applied for in the last 5 five years are a part of your credit file and they come up as “Enquiries”.
Other aspects, such as court judgements, court writs and bankruptcy history are saved on your credit file.

The deposit required for bad credit home loans varies depending on the lender and your individual circumstances. Generally, a larger deposit can improve your chances of approval and potentially secure better terms. A mortgage broker can provide guidance on the deposit requirements specific to your situation.

During the application process for a bad credit home loan in Australia, the following documents are generally required:

Proof of Identity: Typically, a valid passport or driver's licence.
Proof of Income: Recent payslips, tax returns, or other official documents evidencing your earnings.
Bank Statements: Statements showcasing your financial history and current standings.
Details of Existing Debts: Information on current loans, credit cards, or other financial obligations.
Additional Documents: Depending on the lender's criteria, you might need to provide further documentation.

Your mortgage broker can guide you through the document requirements.

The duration of the application process for a bad credit home loan can vary. On average, it may take several weeks to complete the process, including application submission, assessment, and approval. Delays can occur if additional information is required or if there are complexities in your application.

Yes, first-home buyers with bad credit can still explore bad credit home loan options. Specialist lenders may consider applicants with bad credit, but eligibility criteria and interest rates may differ from standard home loans. It's advisable to consult with a mortgage broker who specialises in bad credit home loans to assess your options and eligibility.

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Related Topics

Access to Specialised Lenders

Bad credit home loans connect you with lenders who focus on helping individuals with credit challenges, offering tailored solutions that traditional banks may not provide.

Flexible Eligibility Criteria

These loans often have more lenient requirements, considering your current financial stability rather than focusing solely on your credit history.

Options for Low Deposits

Some lenders may allow you to secure a loan with a smaller deposit, helping you enter the property market sooner despite your credit history.

Improve Credit Score Over Time

Regular repayments on a bad credit home loan can help you rebuild your credit score, opening doors to better financial opportunities in the future.

Loan Features for Support

Many bad credit loans come with flexible features like interest-only periods or payment holidays, designed to ease your financial strain during tough times.

Debt Consolidation Options

Combine existing debts into your home loan to simplify repayments and potentially reduce your overall interest costs, creating a clearer financial path.

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