Bad Credit Home Loan? Here's How to Secure Yours (2026)

Finding yourself in a situation where bad credit is affecting your ability to secure a home loan can be daunting. You dream of owning a home, but past financial missteps seem to stand in your way. The good news is that even with bad credit, there are viable pathways to homeownership. This guide will walk you through understanding your options and taking actionable steps to make your homeownership dreams a reality.

Understanding Bad Credit Home Loans

Before delving into solutions, it's crucial to understand what constitutes a bad credit home loan. In Australia, your credit score is a numerical representation of your creditworthiness, often ranging from 0 to 1200. Scores below 550 are typically considered poor. This can result from missed payments, defaults, or bankruptcy, making traditional lenders hesitant to approve home loans. However, specialised lenders on Esteb and Co's panel of 83+ lenders may still offer solutions tailored to individuals with bad credit, albeit often at higher interest rates.

Current Rates, Requirements, and Options

With bad credit, you can expect to encounter higher interest rates and stricter lending criteria. As of 2026, interest rates for bad credit home loans typically range from 6.49% to 12%. The exact rate depends on your credit score, the lender, and your financial situation.

Lender Type	Interest Rate Range	Typical Requirements
Major Banks	6.49% - 8%	Minimum deposit of 20%, stable income
Specialist Lenders	8% - 12%	Minimum deposit of 10%, income verification
Non-bank Lenders	9% - 12%	Flexible criteria, higher fees

Eligibility criteria often include a stable income, a minimum deposit (usually 10-20%), and a clear plan to improve your credit score. Some lenders may also require you to demonstrate a period of financial stability or savings.

Steps to Secure a Home Loan with Bad Credit

Securing a home loan with bad credit involves strategic planning and action. Here’s how you can approach it:

1. Check Your Credit Score: Obtain a copy of your credit report to understand your financial standing.
2. Improve Your Credit Rating: Address any inaccuracies on your credit report, pay off outstanding debts, and avoid taking new loans.
3. Save for a Deposit: The larger the deposit, the better. Aim for at least 10% of the property value.
4. Consult a Mortgage Broker: Engage with a broker from Esteb and Co to explore options from their panel of 83+ lenders.
5. Prepare Documentation: Gather evidence of income, employment history, and any other relevant financial documents.
6. Apply for Pre-Approval: This helps you understand how much you can borrow and signals to sellers that you are a serious buyer.

Expert Tips and Considerations

When navigating the world of bad credit home loans, consider these expert tips:

• Consider a Guarantor: Having a family member as a guarantor can help secure better terms.
• Explore Different Lenders: Don’t limit yourself to traditional banks; specialist and non-bank lenders often offer more flexibility.
• Be Wary of Fees: Bad credit loans can come with higher fees; ensure you understand all costs involved.
• Stay Informed: Keep abreast of market trends and interest rate movements to time your application effectively.

Frequently Asked Questions

Can I get a home loan with a credit score below 500?
Yes, it is possible, especially through non-bank and specialist lenders, though expect higher interest rates and stricter conditions.

Will a bad credit home loan affect my ability to refinance later?
Yes, it may limit refinancing options. Improving your credit score over time can enhance future refinancing possibilities.

What is the minimum deposit required for a bad credit home loan?
The minimum deposit typically ranges from 10% to 20%, depending on the lender and your financial circumstances.

How can I improve my credit score before applying?
Pay off existing debts, avoid applying for new credit, and ensure timely payment of bills to gradually improve your score.

What role does a mortgage broker play?
A mortgage broker can guide you through the complexities of securing a bad credit loan and connect you with suitable lenders.

Can a guarantor improve my chances?
Yes, a guarantor can bolster your application, potentially allowing access to better terms and lower interest rates.

Are there any government schemes to assist buyers with bad credit?
While there are no specific schemes for bad credit, some state and federal programs provide assistance to first-time buyers or low-income applicants.