In short: A default, a missed payment history or a discharged bankruptcy does not automatically rule out a home loan. Specialist lenders price for the risk instead of declining, typically lending up to 80% of the property value with a rate one to three percentage points above a bank, and reviewing you back to mainstream pricing after 12 to 24 months of clean conduct. The plan matters more than the product.
Be careful of anyone who tells you this is easy or cheap. It is neither. But it is often possible, and for many people it is a two-year detour rather than a closed road.
What actually sits on your credit file
Australians consistently overestimate how bad their file is and underestimate how long items last. Before you assume anything, get your free credit report from each of the three bureaus. MoneySmart explains how.
| Item | How long it stays | Weight with lenders |
|---|---|---|
| Repayment history information (whether each payment was on time) | 24 months | Heavy. A recent pattern of late payments hurts more than one old default. |
| Default (an overdue amount of $150 or more, unpaid 60+ days, with proper notice given) | 5 years | Heavy while unpaid, much lighter once paid and aged |
| Serious credit infringement (a "clearout") | 7 years | Very heavy |
| Credit enquiry | 5 years | Moderate. Many enquiries in a short window looks like shopping in distress. |
| Bankruptcy | Generally 5 years from the start, or 2 years from discharge, whichever is later | Very heavy, then it drops off a cliff |
| Part IX debt agreement | Generally 5 years | Very heavy |
| Court judgment | 5 years | Very heavy |
Two practical points. First, a paid default is treated very differently from an unpaid one, so pay it and get the file updated before you apply. Second, telco and utility defaults are extremely common and are usually the cheapest to clear. Read credit score and home loans for how the score is built and what moves it.
The specialist lending tiers
Non-bank and specialist lenders sort applicants into tiers rather than declining them. The tier drives the rate and the maximum LVR.
| Tier | Typical profile | Typical maximum LVR | Typical rate premium over a bank |
|---|---|---|---|
| Near prime | One or two small paid defaults, a short employment history, self-employed with one year of returns | 85–90% | 0.5–1.0 percentage points |
| Specialist light | Paid defaults up to a few thousand dollars, a couple of late mortgage payments over 12 months | 80–85% | 1.0–2.0 points |
| Specialist full | Larger or recent defaults, judgments, a discharged Part IX agreement, unpaid ATO debt being refinanced | 70–80% | 2.0–3.5 points |
| Discharged bankrupt | Bankruptcy discharged, clean since | 70–80% | 2.0–3.5 points, improving as it ages |
Rate premiums are indicative and move with the market. What is stable is the shape: the further from prime, the lower the LVR and the higher the price.
Worked example: what the premium costs, and what the exit saves
Ravi and Sunita have a paid $4,200 telco default from two years ago and one 30-day late payment on a car loan. They are buying a $700,000 house with a $140,000 deposit, so a $560,000 loan at 80% LVR.
- Specialist lender, illustrative 8.00% p.a. over 30 years: repayment about $4,109 a month.
- Bank pricing, illustrative 6.00% p.a. over 30 years: repayment about $3,357 a month.
- The premium: $752 a month, or $9,024 a year.
Now the exit. After 24 months of perfect repayments on the specialist loan, the default is nearly five years old, the repayment history is clean, and the loan has amortised to about $549,000 while the property may have moved. If they refinance to a bank at 6.00%:
- Two years of the premium cost them about $18,000.
- The refinance then saves roughly $750 a month for the remaining 28 years.
Framed that way, the specialist loan was the price of a two-year entry ticket, not a permanent state. That framing only works if the exit is planned from day one, which is the actual job. Use our refinance calculator to model your own numbers.
What matters more than the score
Specialist assessors are people reading a story, and some facts move a file far more than a number.
- An explanation with evidence. A default caused by a redundancy, an illness, a separation or a business failure that has since been resolved is a very different file from one with no explanation. Write it down, attach the evidence, and be straightforward.
- Recent conduct. Six to twelve months of clean bank statements with no dishonours, no overdrawn days and no gambling pattern carries real weight.
- Genuine savings or a contributed deposit. A deposit you actually saved says more than an equivalent gift. See genuine savings explained.
- Stability. Time in the current job and at the current address.
- What the loan does. A refinance that consolidates high-rate debt and lowers total repayments is easier to approve than a cash-out. See debt consolidation.
Consolidating debt into the home loan
For many people in this position, the real problem is not the home loan rate but the credit cards and personal loans behind it. Rolling them in can transform monthly cash flow, and it can also be a slow-motion mistake.
The honest version: moving a $30,000 personal loan at 14% over 3 years into a 30-year mortgage at 8% cuts the monthly payment dramatically, but if you leave it over 30 years you pay far more interest in total. The right approach is to consolidate and then set the repayment at the old level, or split the consolidated portion over a shorter term. The debt consolidation guide and calculator show both paths side by side.
Also be clear that consolidating unsecured debt into a mortgage converts it into debt secured against your home. That is a genuine increase in risk, not just a change of paperwork.
What we will not do
- We will not promise an approval. Nobody can.
- We will not lodge scattergun applications. Every declined application leaves an enquiry on your file and makes the next one harder. We check policy first and apply once.
- We will not put you into a short-term private mortgage to solve a long-term problem. Private lending has its uses, set out on our private and non-bank lending page, but it is expensive and dangerous when used as a substitute for a real solution.
- If the honest answer is "wait nine months, clear these two items and save another $8,000", we will say that, and we will write you the plan.
If you are behind on an existing mortgage right now, do not wait for us. You have statutory rights to request a hardship variation, and asking early protects your credit file. Read financial hardship rights and mortgage stress: what to do today.
Frequently asked questions
Can I get a home loan with an unpaid default?
Some specialist lenders will consider it, usually at a lower LVR and higher rate, and often on condition that the default is paid out at settlement from the loan proceeds. Paying it before you apply almost always produces a better outcome, because a paid default is scored far more kindly than an unpaid one and it removes the lender's uncertainty about the amount.
How long after bankruptcy can I buy a home?
Some specialist lenders will consider an application from the day of discharge, typically at up to 70–80% LVR with a substantial rate premium. Mainstream lenders generally want two years past discharge with a clean record, and some want the bankruptcy fully off the credit file. In practice, a purchase in the first year after discharge is possible but expensive.
Will applying and being declined damage my credit file?
Each application creates a credit enquiry that is visible for five years, and a cluster of enquiries in a short period is itself a negative signal. The decline is not recorded, but the pattern of enquiries tells the story. This is the main reason to have someone check lender policy against your actual file before lodging anything.
Are specialist lenders regulated?
Australian non-bank and specialist lenders offering consumer home loans must hold an Australian credit licence and comply with the National Consumer Credit Protection Act, including responsible lending obligations, and are members of AFCA for dispute resolution. They are not banks and are not covered by the deposit guarantee, but that is irrelevant to a borrower. See the NCCP Act.
Can I refinance out of a specialist loan later?
That is the plan. Most borrowers can move to mainstream pricing after 12 to 24 months of clean repayments, provided the LVR supports it and the adverse items have aged. We diarise the review date at settlement and check the market for you when it arrives, rather than leaving you on the specialist rate by default.
Does an ATO debt stop a home loan?
Not necessarily. An unmanaged tax debt is a serious negative, and since 2019 the ATO can report business tax debts above a threshold to credit reporting bureaus in some circumstances. A debt under a formal payment plan that has been met for several months is a much better file. Some specialist lenders will refinance an ATO debt into the loan, which can be cheaper than the general interest charge.
Talk to GNT Finance
Send us your credit report and we will tell you plainly what is achievable now, what it costs, and what the fastest route back to bank pricing looks like. No judgement, and no application until we know it will hold up. Consultations in English, Nepali or Hindi, with an interpreter in your language on request. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Lending criteria, terms, fees and charges apply, and approval is subject to lender assessment.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.