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Bad credit home loans guide

  • Compare lenders offering bad credit home loans.
  • Get expert tips on improving your chances of approval.

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Bad credit home loans

Compare bad credit home loan providers & interest rates

Compare the best bad credit home loan rates in Australia. Check your eligibility with 26 lenders online, instantly. We display all bad credit home loans on our database and we’re not paid by lenders if you click through to their website. The table is sorted by lowest regular repayment. Use the filters to search for your best bad credit home loan. Read the comparison rate warning and other important information.

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Rates updated 02 December 2024

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Can you get a home loan with bad credit?

Yes, it’s often still possible to get a home loan if you have bad credit. While some of the bigger banks might be hesitant, there are plenty of specialist lenders and mortgage brokers in Australia who cater specifically to borrowers with bad credit.

Mansour Soltani home loan expert

Mansour Soltani , Home Loans Expert

“A lot of people think that because I'm a discharged bankrupt or I've had a default, or multiple defaults, I can't get a home loan. That's not the case. There are lenders out there that will give you money under all sorts of circumstances. They just charge more for the risk.”

Mansour Soltani , Home Loans Expert

What are bad credit home loans and how do they work?

Bad credit home loans are for people who can’t get a loan from mainstream lenders. This might be because of financial problems, a bad credit score from missed payments, defaults, or previous bankruptcy.

Bad credit home loans essentially help borrowers with credit issues obtain a mortgage. But there are drawbacks. Specifically, bad credit home loans can be considerably more expensive than standard mortgages. Expect higher mortgage interest rates and fees.

Money’s home loans expert, Mansour, suggests starting with a bad credit home loan to buy the property. Then once your financial situation improves, you can refinance the home loan to a lower rate.

How bad credit home loans differ from standard mortgages

Here are some other ways these loans differ to standard home loans in Australia:

Bad credit home loans

Designed for borrowers with poor credit. Typically have higher interest rates to compensate for the increased risk of lending to someone with bad credit.

Standard home loans

Available to borrowers with average to excellent credit scores. Requirements are stricter, but interest rates and terms are generally better.

Bad credit home loans

The application generally requires low documentation, meaning you won’t be subjected to the same strict criteria that regular lenders apply when assessing loan applications.

Standard home loans

The application process requires more documentation about your income and employment.

Bad credit home loans

There may be restrictions on how much you can borrow as a percentage of the value of the property you’re buying (known as your loan-to-value ratio or LVR).

Standard home loans

You can usually borrow up to 95% of the property’s value (although lender’s mortgage insurance will normally apply to an LVR greater than 80%).

Bad credit home loans

Some lenders are more selective about what kinds of properties and postcodes they will fund loans for (e.g. large acreage properties in certain rural areas may be off limits).

Standard home loans

Lenders aren’t as strict as to where you are looking to buy.

Bad credit home loansStandard home loans

Designed for borrowers with poor credit. Typically have higher interest rates to compensate for the increased risk of lending to someone with bad credit.

Available to borrowers with average to excellent credit scores. Requirements are stricter, but interest rates and terms are generally better.

The application generally requires low documentation, meaning you won’t be subjected to the same strict criteria that regular lenders apply when assessing loan applications.

The application process requires more documentation about your income and employment.

There may be restrictions on how much you can borrow as a percentage of the value of the property you’re buying (known as your loan-to-value ratio or LVR).

You can usually borrow up to 95% of the property’s value (although lender’s mortgage insurance will normally apply to an LVR greater than 80%).

Some lenders are more selective about what kinds of properties and postcodes they will fund loans for (e.g. large acreage properties in certain rural areas may be off limits).

Lenders aren’t as strict as to where you are looking to buy.

Most lenders charge an extra ‘risk fee’ on bad credit home loans to mitigate the risk of the borrower defaulting. This fee is a percentage of the loan amount (e.g. 1%) and can either be paid up-front or added to the loan. Some lenders charge a separate Lender Protection Fee (LPF) on loans with a high LVR.

Reasons you might need a bad credit home loan

Common reasons you may need to go with a bad credit home loan provider include:

  • You have an average or below average credit score (e.g. lower than 660).
  • You have a bankruptcy filing or are subject to debt arrangements.
  • You have made numerous applications for credit in the last 12 months.
  • You have unpaid bills, taxes and other debt payments (defaults).
  • You are the director of a business that is struggling financially.

Here are two bad credit home loan case studies based on Mansour’s recent mortgage broking clients.

Bad credit borrowers too many credit applications

Case study 1

Borrower with too many credit applications and late repayments

A client of mine was looking to buy a property with a $900,000 loan, but he had made more than 20 other credit requests (credit cards, business loans, personal loans) over the last three years...

Discharged bankrupt case study

Case study 2

Discharged bankrupt

Another client I worked with recently is a discharged bankrupt. He came to me two or three months ago looking for a construction loan.

Am I eligible for a bad credit home loan?

There are bad credit home loan options designed to cater for virtually every type of borrower, whether you're a first-home buyer, refinancer or investor.

As long as you meet the basic criteria (being over 18 and either an Australian citizen or permanent resident), your eligibility mainly comes down to your capacity to meet the loan repayments.

Bad credit mortgage lenders are still bound by Australia's responsible lending rules (National Consumer Credit Protection Act 2009) and will consider each application individually based on:

  • Your income
  • Your expenses
  • Your other debts and assets
  • The loan amount
  • Your loan-to-value ratio
  • The property you’re buying (the security for the loan)

One common exception is people who are currently bankrupt and generally do not qualify for a home loan as a result, even among bad credit mortgage providers.

How banks and lenders view bad credit mortgages

Here are some ways traditional banks and specialist lenders might treat bad credit borrowers differently:

Factors

Risk tolerance

Traditional banks

Cautious and often hesitant to lend to borrowers with bad credit

Specialist lenders

More flexible and willing to review each application individually

Factors

Lending criteria

Traditional banks

Usually charge higher interest rates or fees, have stricter terms, or require a larger deposit

Specialist lenders

Provides specialised loan options for people with impaired credit

Factors

Application assessment

Traditional banks

Will look at your overall financial health, including your credit score, income, and employment status

Specialist lenders

Tend to have a more personalised approach, assessing applications on a case-by-case basis

Factors

How bad credit is perceived

Traditional banks

View as a greater risk, often leading to higher rejection rates

Specialist lenders

Are generally more open to considering bad credit as part of the overall financial picture

FactorsTraditional banksSpecialist lenders

Risk tolerance

Cautious and often hesitant to lend to borrowers with bad credit

More flexible and willing to review each application individually

Lending criteria

Usually charge higher interest rates or fees, have stricter terms, or require a larger deposit

Provides specialised loan options for people with impaired credit

Application assessment

Will look at your overall financial health, including your credit score, income, and employment status

Tend to have a more personalised approach, assessing applications on a case-by-case basis

How bad credit is perceived

View as a greater risk, often leading to higher rejection rates

Are generally more open to considering bad credit as part of the overall financial picture

How to apply for a bad credit home loan

Review your credit report as a first step. Sometimes a bad credit score is down to errors in your report that can be fixed.

You can also check when information was added to your credit report and, based on that, work out how soon it will be removed. This can influence whether you choose to apply for a home loan now, or wait. For example, some missed payments or defaults can remain on your credit file for up to two years, according to the OAIC.

You can request a free copy of your credit report from one of Australia's main credit bureaus (Experian, Equifax and illion) every three months.

Before submitting an application, it’s best to speak to several lenders to discuss your situation and options.

You can either do this by approaching lenders directly or through a broker. Doing this will ultimately give you a better chance of being approved while allowing you to compare the rates and loan features different lenders may offer you.

Most bad credit home loan applications can be completed online and relatively quickly if you have the necessary information ready.

Exactly what supporting documentation you’ll need to submit with the application varies depending on the lender and your situation, but it can include:

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  • Australian passport or valid Australian permanent residency visa
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  • 3 months’ bank and loan statements
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  • Proof of assets (e.g. share trading account statement)

For PAYG employees:

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  • 3 months of payslips
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  • Letter of employment

For self-employed applicants:

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  • Proof of ABN and GST registration
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  • Business bank statements
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  • Recent tax returns, notice of assessments and financial statements
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  • Declaration of financial position signed by your accountant

Some lenders offering low doc home loans will require the bare minimum documentation. If you can’t supply the information above, it may be best to discuss options with a mortgage broker.

If the lender is happy with your application, it will grant conditional approval. The last step involves the lender ordering a valuation of the property you’re buying.

Because the property will be used as security for the loan, the lender will only give full approval if the valuation is high enough so that the LVR on the loan is lower than the maximum it allows.

Compare bad credit home loan features

1

Extra repayments

Most loans allow you to pay more than the minimum regular repayments so you can pay down the debt faster. Look for loans that allow unlimited extra repayments without fees.

2

Redraw facility

A redraw facility gives you the option to withdraw any extra repayments you made on the loan if you need to access cash. Ideally you want a redraw facility with no limits or fees.

3

100% offset account

A 100% offset account is a savings or transactions account linked to your mortgage. Your mortgage interest is calculated on your loan balance minus the amount in your linked savings account.

4

Interest-only option

Some bad credit home loans will give you the option to pay only the interest on the loan for a period of up to five years. The eligibility criteria on interest-only loans (e.g. maximum LVR) are usually stricter, with higher interest rates.

5

Debt consolidation

Debt consolidation means rolling some or all your other debts into your home loan. This could mean paying a lower interest rate on the likes of personal loan and credit card debt, plus the convenience of a single repayment. The drawback is potentially higher overall interest costs due to the longer loan term (up to 30 years on a mortgage).

6

Split loan option

You’ll generally have the option of either a variable or fixed rate on a bad credit home loan. But some loans also offer the option to split the loan between a fixed and variable portion (e.g. 50:50, 60:40; 70:30). This can offer a combination of certainty (fixed portion) plus more flexibility to make extra repayments (variable).

Should you apply for a bad credit home loan or improve your credit first?

This is where having an initial conversation with potential lenders or a mortgage broker is crucial. Doing that will give you an idea of how likely it is that you will be approved now, and if not, what or how long it will take to improve your credit score and overall situation so you are eligible in future.

If it’s a ‘no’ now, what will it take to get to ‘yes’?

Mansour Soltani home loan expert

Mansour Soltani , Home Loans Expert

"Sometimes having run through scenarios with various lenders for clients, I can see that their application is not going to work. That can be first-time buyers, investors or whatever. But I always tell them how long it will be before it is going to work and what that will take. Sometimes it's a case of waiting for an interest rate drop, an increase in income or something negative coming off your credit report. If you do get a ‘no’ from your broker or your bank, ask them 'what next?'"

Mansour Soltani , Home Loans Expert

Pros
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  • Offers an alternative when other lenders won’t approve your application.
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  • Allows you to get into the property market sooner.
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  • Repaying a bad credit home loan consistently could help you build your credit score.
Cons
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  • Higher interest rates compared to standard loans.
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  • Higher fees, particularly ‘risk fees’.
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  • If your application is rejected, that may further damage your credit score.

5 tips to help you get your bad credit home loan approved

1

Demonstrate your ability to save

Lenders will want to see a history of genuine savings. They will check that you’ve gradually saved at least 5-10% of the property’s value over time (excluding cash gifts). Consider putting your money into a high-interest savings account that you top up each month. That way, when the lender asks for your bank statements, it will clearly show your discipline of saving money.

2

Show ‘clean’ bank statements

Lenders will ask for three months of bank statements to assess your income and expenses. They will comb over your transaction history to look at your spending habits and how you manage your money. Lenders want to see 'good banking conduct', which means no arrears, overdraws or dishonours. Additionally, too much discretionary spending may raise some flags. Ideally, you should always have money in your transaction account at the end of each pay cycle or month.

3

Kept your current debts in ‘good standing’

This means staying on top of any loan repayments and paying your credit card balance in full each month. This shows the lender that you prioritise your loan obligations, making you less likely to default on a home loan in their perspective.

4

Consider a guarantor

A guarantor is a family member (usually a parent) who may be willing to offer some of their home equity as additional security for your loan. Having a guarantor reduces your risk as a borrower, meaning lenders may be more inclined to approve your home loan application. However, if there’s a default and the property sale doesn’t cover the remaining loan balance, the lender may seek the guarantee amount from the guarantor, according to ANZ.

5

Continue to improve your credit score

Continue paying your utility bills and debts on time. More importantly, paying off debts sooner rather than later could improve your credit score, according to Equifax. You could use a snowball method that involves paying off your smallest debts first, then moving on to the next smallest, and so on. Keep in mind that lenders will look at the diversity of your 'credit mix' which shows you can responsibly manage different types of debt.

Home loans guides & resources

What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.

Bad credit home loan FAQs

Depending on the reporting agency, credit scores can range from 0 to either 1,000 or 1,200. For example, Equifax uses a score range up to 1,200 to calculate your credit rating and uses the following classifications:

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  • Below average (0 to 459)
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  • Average (460 to 660)
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  • Good (661 to 734)
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  • Very good (735 to 852)
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  • Excellent (853 to 1,200).

There is no absolute minimum credit score required for a home loan as each lender has its own rules for assessing applications.

However, according to our home loans expert, Mansour Soltani, borrowers with a credit score below 660 (in Equifax’s ‘average’ or ‘below average’ brackets) are unlikely to be eligible with most mainstream lenders and may need to consider a bad credit home loan instead.

Interest rates on bad credit home loans are usually in excess of 7% p.a. but can be considerably higher for some applicants who the lender views as representing a higher level of risk.

Here are the factors that lenders will usually consider when calculating the interest rate on a bad credit home loan:

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  • Your loan-to-value ratio (LVR) which is your loan amount as a percentage of the value of the property
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  • Whether the loan has a fixed rate or variable interest rate
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  • Whether it is a owner-occupied or investment property home loan
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  • Whether you are making interest-only repayments or principal and interest repayments
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  • Your income
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  • The specifics of your credit history
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  • Other debts you have
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  • Whether you own any other assets (e.g. a car or business assets)

Lenders charge an additional one-off ‘risk fee’ on bad credit home loans, and on other loans where the borrower represents a high level of risk. These are designed to protect the lender for the increased risk in offering loans to borrowers with issues in their credit history.

How much you’re charged in risk fees will vary from lender to lender but it is commonly 1% of the loan amount. Borrowers can pay for risk fees up front when the loan settles or have the fees added to their loan amount, in which case there will be interest payable on the fee amount.

For example, on a $750,000 loan a 1% risk fee would equal $7,500. If added to the loan amount, that could actually end up costing the borrower more than $56,000 over a 30-year loan term, assuming an interest rate of 7% and monthly repayments.

If you have issues in your credit history, applying through a specialist bad credit mortgage provider may give you the best chance of being approved. Here are some of the main bad credit home loan providers in Australia:

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  • Axis Lending
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  • Bluestone
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  • La Trobe Financial
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  • Liberty Financial
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  • MA Money
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  • ORDE Financial (available through brokers only)
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  • Pepper Money
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  • Red Rock
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  • Resi

Yes, mortgage brokers can facilitate bad credit home loans for borrowers and may have access to certain lenders that borrowers cannot apply with directly. Some mortgage brokers even specialise in securing bad credit home loans from non-bank lenders.

Megan is a Finance Writer and Head of PR at Money with over a decade of industry experience. She keeps her finger on the pulse of financial trends, providing journalists and media with data, insights, and news that help Australians navigate complex topics and concepts. She's certified in Finance & Mortgage Broking and is compliant to provide general advice in Tier 1 General Insurance.

Mansour Soltani is Money.com.au’s home loans expert. He’s a mortgage broker with more than 20 years of experience in the finance and real estate industry. Mansour is the Director of Soren Financial and has been featured in publications such as the ABC, Domain.com.au and Australian Broker.

Important information

Home loan comparison rates are calculated based on a loan amount of $150,000 repaid over a 25-year term with monthly repayments. The comparison rates only apply to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan. Check with the provider for full loan details, including rates, fees, eligibility and terms and conditions to make sure the product is right for you.

General information only

The information on this page is general in nature and has been prepared without considering your objectives, financial situation or needs. You should consider whether the information provided and the nature of any home loan product is suitable for you and seek independent financial advice if necessary.

We are not providing you with a recommendation or suggestion about a particular home loan. You should read the relevant disclosure statements or other offer documents before deciding whether to apply for or continue to use a particular product.

What products, features and information are shown

While we make every effort to ensure all home loans available in Australia are shown in our comparison tables, we do not guarantee that all products are included.

Our product comparisons may not compare all home loan features and attributes relevant to you.

Product information, such as interest rates, fees and charges, is subject to change without notice. Before acting on any information, you should confirm the relevant product information with the lender.

How home loans are sorted and filtered by default

Users can easily change the sort order and apply product filters to our product comparison tables. However, when you arrive on a page initially, by default home loans are sorted by:

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  • Lowest regular repayment amount, then;
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  • Loans interest rate, then;
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  • Lowest comparison rate, then;
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  • Provider name (A-Z)

Some home loan products listed in our tables are available through a mortgage broker. These are the products with an option to ‘Check Eligibility on Money.com.au’. Mortgage brokers may not be able to offer loans from every provider and there may be more suitable loans for your personal circumstances.

Mortgage brokers are not authorised by Money's Australian Credit Licence and operate under their own Australian Credit Licence, or as a credit representative of another Australian Credit Licensee. Mortgage brokers can make recommendations about home loan products that may suit your objectives, financial situation and needs.

Our tables feature all home loans available from lenders on our database that match the search criteria selected. Lenders do not pay to feature in our tables, nor do we earn commission if you click to visit a lender’s website. The order of the products in the table is not influenced by any commercial arrangements.

If you get help from a mortgage broker as a result of visiting this page, we may earn a commission.

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