Can You Get a Home Loan with a Default on Your Credit File?

A past default may limit your lending options, but it doesn’t necessarily put home ownership out of reach.

If you have a default on your credit file, you may still be able to get a home loan. Your options will depend on the circumstances behind the default, your current financial position and the requirements of the lender assessing your application.

Some lenders have strict policies around credit history, while others can consider applications involving past financial difficulties. Understanding where you stand before applying can help you avoid unnecessary credit enquiries and prepare a stronger application.

How Do Lenders Assess Defaults?

Lenders consider more than the presence of a default. They may look at:

• The type of debt: Whether it relates to a phone bill, utility account, credit card, personal loan or another commitment.
• The amount: The size of the default and its significance in your circumstances.
• The timing: When it was listed and how you have managed your finances since.
• The payment status: Whether it has been paid, remains outstanding or is subject to an arrangement.
• The circumstances: Whether it followed an event such as redundancy, illness or separation.
• Your broader credit history: Whether it was an isolated issue or there have been other missed payments or defaults.

An older, paid default may be viewed more favourably than a recent default accompanied by ongoing repayment problems. However, each lender applies its own criteria, and no single factor determines the outcome.

Your income, expenses, existing debts, deposit and proposed property will also form part of the assessment.

How Long Does a Default Stay on Your Credit File?

A default generally remains on your credit file for five years from the date it was listed. Paying the debt does not automatically remove the listing, but your credit report should be updated to show that it has been paid.

Before applying for a home loan, obtain a copy of your credit report and check that the information is accurate. If a default has been paid, check that its status reflects this.

If you find an error, you can ask the credit provider or credit reporting body to investigate and correct it. An accurate default generally cannot be removed simply because you have since paid the debt.

Will You Need a Larger Deposit?

A larger deposit may improve your options, particularly if your default is recent or your credit history includes several issues. However, there is no universal deposit requirement for borrowers with defaults.

The amount you need will depend on the lender, the loan product, your credit history and the property being purchased. You will also need to allow for applicable purchase costs, such as stamp duty, conveyancing and lender fees.

Where lenders mortgage insurance (LMI) is required, the application may also need to satisfy the insurer’s criteria. For many standard home loans, a deposit of at least 20% can help avoid LMI, although specialist products may have different fees and lending arrangements.

A broker can help you understand the deposit and total funds required for the options available to you.

Which Lenders Consider Applicants with Defaults?

Some mainstream lenders may consider certain defaults within their credit policies. Specialist and non-bank lenders may offer additional options for borrowers whose circumstances fall outside standard lending criteria.

Greater flexibility can come with higher interest rates, additional fees or a larger deposit requirement. It is important to compare the overall cost and suitability of a loan, alongside the prospect of approval.

Before lodging a formal application, a broker can review your circumstances against relevant lender policies and, where appropriate, discuss the scenario with a lender. This can help reduce unnecessary applications, although it does not guarantee approval.

What If the Default Is Still Unpaid?

An unpaid default can make obtaining a home loan more difficult, but it does not automatically rule out every lender. Some specialist lenders may consider unpaid defaults, subject to their policies and a full assessment of your circumstances.

Resolving an outstanding debt may improve your options. A lender may ask for evidence of payment, details of an arrangement or an explanation of why the debt remains unpaid.

Paying a default shortly before applying does not guarantee approval. The lender will still consider when the issue occurred, what caused it and whether your current financial position supports the proposed loan.

If you are unsure whether to apply now or spend more time strengthening your position, an initial assessment can help clarify the next steps.

How to Prepare Your Application

A clear explanation and supporting documents can help a lender understand your circumstances.

Depending on the lender and your situation, you may need:

• A written explanation of what happened and when.
• Evidence that the default has been paid or details of any payment arrangement.
• Recent payslips or relevant self-employed income documents.
• Bank statements showing how you manage your accounts and commitments.
• Evidence of your deposit and savings history.
• Supporting information about the event that contributed to the default, where relevant.

A statutory declaration may be requested in some cases, but it is not a standard requirement for every application.

Be upfront about known credit issues. This allows your broker to assess suitable options early and address questions before an application is submitted.

Strengthening Your Position Before You Apply

If buying immediately is not essential, taking time to improve your financial position may broaden your options.

Useful steps include:

• Paying current commitments on time.
• Building a consistent savings history.
• Reducing outstanding debts where practical.
• Avoiding unnecessary credit applications.
• Managing your accounts to minimise overdrawn balances and dishonoured payments.
• Keeping records of any debts you have resolved.

Some lenders require evidence of genuine savings, but the definition and required timeframe vary. Your broker can explain how a lender is likely to assess your deposit, including savings, gifts or other funds.

A stronger deposit and improved credit conduct can help, but you must also demonstrate that you can afford the loan repayments alongside your other commitments.

Could You Refinance Later?

If you initially take out a specialist home loan, it may be worth reviewing your options as your circumstances improve.

A future refinance will depend on the lending policies available at that time, your income and expenses, repayment history, property value and remaining debts. Moving to a lower-cost loan should be treated as a possibility rather than a guaranteed outcome.

Any review should consider potential savings alongside discharge fees, application costs and other charges.

Understand Your Options Before You Apply

A default is one part of your financial history. Understanding how it affects your options can help you decide whether to apply now, adjust your budget or spend more time preparing.

At Balcombe Financial, we can review your circumstances, explain relevant lender requirements and help you prepare your application.

Contact Balcombe Financial to arrange a confidential conversation about your home loan options.

All applications are subject to lender assessment and approval. Lending criteria, rates, fees and product availability vary.