Bad Credit Home Loans

Credit policy is not a single line. It is a series of tolerances, and different lenders sit in very different places on each of them.

Equity does a great deal of the work. A credit-impaired file at 60 per cent LVR has options that the same file at 88 per cent does not, because the lender’s downside is covered by the security rather than by your history.

Two files with identical listings are assessed differently depending on two things: whether the debts are paid, and whether there is a coherent explanation.

1. 01Pay what you can before applying. A paid default reads as a resolved problem. An unpaid one reads as an ongoing one.
2. 02Write the explanation down. Illness, a business failure, a relationship breakdown, a client who did not pay. Assessors read these and they matter.
3. 03Show what changed. The explanation is only persuasive if something is different now.
4. 04Do not hide a listing. It will be found, and a file that omitted it is treated as a file that cannot be trusted on anything else.
5. 05Get the recent conduct clean. Six to twelve months without a missed payment or a dishonour is the strongest single argument you can make.

Specialist lenders exist because mainstream credit policy is binary and real lives are not. They are regulated lenders operating under the same responsible lending obligations, assessing the same servicing, with different tolerances for what is on the file.

• Pricing sits above mainstream, sometimes considerably, and is tiered by the severity of the credit events.
• Maximum LVR is generally lower, commonly 80 per cent and sometimes less for heavier files.
• Risk fees or higher establishment costs are common in place of mortgage insurance.
• Assessment is more manual and often more forgiving of an explained one-off event than of a pattern.
• Most are designed as a two to three year solution rather than a thirty year one.

The cost is real and so is the alternative. Where a specialist loan clears arrears, consolidates unsecured debt and stops the file deteriorating further, the arithmetic usually favours acting now over waiting for the credit file to age.

Non-bank lender

A regulated lender that funds from wholesale markets rather than deposits. Same responsible lending obligations, different credit tolerances.

Specialist lender

A lender whose policy is built around credit events, assessed manually and priced in tiers according to how recent and how serious they are.

Risk fee

An upfront charge some specialist lenders apply in place of mortgage insurance, reflecting the credit profile rather than the LVR alone.

Capitalising arrears

Adding missed mortgage repayments to the new loan balance at settlement, so the loan starts current rather than behind.

Hardship arrangement

A formal variation you can request from your existing lender where the difficulty is temporary. Often a better first step than a new loan.

If you are currently bankrupt or in an active Part IX debt agreement, a home loan is not available and the right professional is a registered insolvency practitioner or a free financial counsellor, not a broker. We will say so plainly rather than take an application that cannot proceed.

Once discharged, lending returns in stages. A small group of specialist lenders will consider a file shortly after discharge at conservative LVRs. The panel widens as time passes, and after several clean years many mainstream lenders will assess the file normally, particularly where the bankruptcy has aged off the credit report even though it remains on the national personal insolvency index permanently.

What lenders look for after discharge is a clean run since: no new defaults, stable income, savings accumulating, and an honest account of what happened. That evidence is worth building deliberately in the first year rather than discovering you needed it in the third.

1. 01

   Get the report

   A free copy from each credit reporting body, so the plan is built on what is listed rather than on what you remember.

2. 02

   Resolve what can be resolved

   Pay or settle defaults where you can, and dispute anything genuinely incorrect at no cost.

3. 03

   Stabilise the position

   A specialist or non-bank loan that clears arrears, consolidates unsecured debt and produces one manageable repayment.

4. 04

   Twelve to twenty-four months of clean conduct

   Every repayment on time. Repayment history is reported for twenty-four months and it is the strongest evidence you can build.

5. 05

   Let the listings age and the LVR fall

   Defaults drop off at five years. Meanwhile principal repayments and value growth move the LVR toward 80 per cent.

6. 06

   Refinance to mainstream pricing

   We diarise the review. A specialist loan left in place for a decade is a failure of follow-up, not a feature of the product.

• Do not apply to several lenders at once to see who says yes. Each enquiry is visible for five years, and a cluster of them reads as desperation.
• Do not take a payday or short-term high-cost loan to cover a repayment. Lenders see it on your statements and it damages the file more than the shortfall did.
• Do not leave mortgage arrears to accumulate while you decide. Options narrow sharply once the arrears pass a certain point, and the lender’s own process starts running.
• Do not omit a listing from an application. Non-disclosure is a bigger problem than the listing itself.
• Do not ignore lender hardship provisions. If the issue is temporary, a formal hardship arrangement with your existing lender is often better than a new loan.