10 Ways to Secure a Home Loan After a Default

A Default Stays on Your Credit File for Five Years

A credit default remains on your credit file for five years from the date it was listed, regardless of whether you've paid it. Lenders can see it during that entire period, and most will ask you to explain what happened. Paying the default doesn't remove it, but it does change how lenders assess the risk. A paid default signals you've taken responsibility. An unpaid default, particularly one over $1,000, will limit your options significantly.

In our experience, borrowers who've resolved their defaults and can show consistent saving or rental payment patterns over the past 12 to 24 months tend to have more lender options available. The amount matters, too. A $200 phone bill default from three years ago will be treated differently to a $5,000 personal loan default from six months ago.

Some Lenders Will Accept a Default, Others Won't Touch One

Not all lenders view defaults the same way. The major banks typically won't approve a home loan if you have a default listed in the past two to three years, particularly if it's unpaid. Some non-major lenders will consider applications with a default, provided you meet their criteria around the age of the default, the amount, and whether it's been paid.

Consider a buyer who had a $1,200 utility default listed 18 months ago after relocating interstate and missing final bills. They paid it as soon as they became aware, saved a 15% deposit, and maintained stable employment. A non-major lender approved their application at a slightly higher interest rate than the advertised variable rate for prime borrowers. The outcome was a full approval with a 25-year loan term on an owner-occupied property. The lender's policy allowed defaults over 12 months old if paid and under $2,000.

Your Deposit Size and Employment Stability Matter More After a Default

Lenders tighten their serviceability assessment when a default is on file. A larger deposit reduces the loan to value ratio and demonstrates your ability to save consistently despite the earlier setback. Stable employment over the past 12 months or longer shows reliable income. If you're self-employed, lenders may ask for two full years of financials rather than the standard 12 months.

Some lenders will also look at your banking conduct over the past three to six months. Regular dishonours, unpaid direct debits, or frequent overdrafts will weaken your application even if your default is old and paid. Clean banking behaviour over a sustained period strengthens your position.

Lenders Mortgage Insurance Becomes Harder to Arrange

If your deposit is less than 20%, you'll need lenders mortgage insurance. Most LMI providers won't insure a loan where the borrower has an unpaid default. Even with a paid default, some insurers will decline or apply strict conditions around the age and amount. That can mean a lender who might otherwise approve your loan cannot proceed because they can't secure the insurance they need to manage their risk.

In a scenario like this, a borrower with a paid default aged 14 months and a 12% deposit was unable to access LMI through the lender's standard insurer. The lender offered an alternative: delay the application by another 10 months until the default was two years old, or increase the deposit to 20% to avoid needing insurance altogether. The borrower chose to delay and save more, ultimately applying with a 22% deposit and receiving approval at current variable rates.

Pre-Approval Gives You a Clearer Picture Before You Commit

Applying for pre-approval before you start looking at properties lets you know where you stand. A broker can submit your application to a lender who accepts defaults within your profile, and you'll receive conditional approval based on your income, deposit, and credit history. That approval is usually valid for three to six months, giving you time to find a property without the uncertainty of whether your default will block the deal.

Pre-approval also identifies any issues early. If your default is too recent or your deposit too small, you'll know before you make an offer or pay for building and pest inspections.

Interest Rates May Be Higher Depending on the Lender

Lenders who accept applications with defaults often price the loan differently. You may not qualify for the lowest advertised rate, and you may not receive the same interest rate discount that a borrower with a clean credit file would. The difference can be anywhere from 0.20% to 0.80% above the standard variable rate, depending on the lender's risk assessment and your overall application strength.

That difference affects your repayments over the life of the loan. At current variable rates, an extra 0.50% on a $500,000 loan can add several hundred dollars a month to your repayment. Once the default ages beyond a certain point, usually two to three years, you may be able to refinance to a lower rate with a different lender or negotiate a better rate with your current one.

You'll Need to Provide a Written Explanation

Most lenders will ask for a written statement explaining the circumstances that led to the default. They want to understand whether it was a one-off event caused by something outside your control, such as a hospital admission, job loss, or relationship breakdown, or whether it reflects ongoing financial difficulty.

Your explanation should be factual and brief. Include what happened, what you did to resolve it, and what's changed since. If you've improved your financial position, mention it. Lenders are assessing whether the same situation is likely to happen again.

Unpaid Defaults Over $1,000 Will Block Most Applications

If your default is unpaid and over $1,000, most lenders won't proceed. Some won't proceed regardless of the amount. Paying the default before you apply opens more options, even if the payment was recent. If you can't pay the full amount, some lenders will accept a payment arrangement, provided you can show proof that you've been meeting the agreed schedule for at least three to six months.

Check your credit file before you apply. You're entitled to a copy from each of the credit reporting bodies operating in Australia. If the default is listed incorrectly or relates to a debt you've already settled, you can dispute it. Correcting an error before you lodge your home loan application can make the difference between approval and decline.

Non-Major Lenders Offer More Flexibility Than the Big Four

The major banks apply strict credit policies and generally won't approve a loan if a default appears within the past 24 to 36 months. Non-major lenders, including regional banks, credit unions, and specialist lenders, often assess each application individually. They may accept older defaults, lower deposit sizes, or less conventional employment structures.

Working with a broker gives you access to a wider panel of lenders. A broker familiar with credit-impaired lending knows which lenders will consider your situation and can structure your application to meet their criteria. That might involve adjusting your loan amount, choosing a different property type, or waiting a few more months to strengthen your position.

Timing Your Application Can Improve Your Chances

If your default is recent, waiting another six to 12 months before applying can significantly improve your options. Use that time to pay the default if it's outstanding, build your deposit, and maintain clean banking records. The older the default, the less weight it carries. A three-year-old paid default is far less likely to affect your application than a six-month-old one.

If you're unsure whether to apply now or wait, speak to a broker who can assess your current position and give you a realistic view of what's available. Sometimes waiting makes sense. Other times, applying now with a non-major lender is the better path, particularly if property values are rising or you're paying high rent.

Call one of our team or book an appointment at a time that works for you. We'll review your credit file, assess your borrowing capacity, and connect you with a lender who can work with your situation.

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