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

Struggling with bad credit and wondering if you can still achieve your dream of owning a home? You’re not alone. Many Australians face the challenge of securing a home loan with less-than-perfect credit. But here's the good news: it's not impossible. With the right strategy and guidance, you can still navigate the home loan process and find a solution that fits your needs.

Understanding Bad Credit and Home Loans

Bad credit can feel like a significant barrier when you’re looking to secure a home loan. In Australia, your credit score is a numerical representation of your creditworthiness, typically ranging from 0 to 1200. A score below 500 is often considered poor. This score reflects your financial history and behaviour, including any defaults, late payments, and bankruptcies.

Lenders use your credit score to gauge the risk of lending to you. While a low score can limit your options, it doesn't entirely rule out the possibility of securing a loan. There are still lenders willing to work with individuals who have bad credit, often referred to as non-conforming or specialist lenders. These lenders understand that credit scores don’t tell the whole story and are more flexible with their requirements.

Current Market Options and Interest Rates

In 2026, the Australian housing market remains competitive, but there are still options available for those with bad credit. Interest rates for bad credit home loans are generally higher than standard loans, reflecting the increased risk to the lender. However, with careful planning and the right approach, you can still find a loan that works for you.

Here's an overview of what to expect:

At Esteb and Co, we have access to a panel of 83+ lenders, including those who specialise in bad credit loans. This gives you a better chance of finding a lender that suits your specific circumstances.

Steps to Secure a Home Loan with Bad Credit

If you're ready to pursue a home loan despite having bad credit, here are some actionable steps you can follow:

1. Check Your Credit Report: Obtain a copy of your credit report from a credit reporting agency. Review it for any errors that could be negatively impacting your score.
2. Improve Your Credit Score: Take steps to improve your score by paying down debts, ensuring bills are paid on time, and limiting new credit applications.
3. Save for a Larger Deposit: A larger deposit can offset the risk to lenders and improve your chances of approval.
4. Consult a Mortgage Broker: A broker like Esteb and Co can provide personalised advice and connect you with lenders willing to consider your application.
5. Prepare Your Financial Documents: Gather all necessary documents, including payslips, bank statements, and any explanations for past credit issues.
6. Consider a Guarantor: Having a guarantor can add security to your application and potentially reduce interest rates.
7. Choose the Right Lender: With the help of your broker, select a lender that offers terms you can manage.

Expert Tips and Considerations

Securing a home loan with bad credit requires careful consideration and strategic planning. Here are some expert tips to help you on your journey:

• Be Realistic: Understand your financial limitations and ensure that any loan you take on is sustainable for your budget.
• Negotiate Terms: Don’t hesitate to negotiate terms with your lender. There may be flexibility in fees or interest rates.
• Consider Alternative Options: If a traditional home loan isn’t viable, consider looking into rent-to-buy schemes or shared ownership.
• Stay Informed: Keep up-to-date with changes in the lending environment that might affect your options.
• Plan for the Future: Use your home loan as an opportunity to rebuild your credit score by making timely repayments.

Frequently Asked Questions

1. Can I get a home loan with a credit score below 500? Yes, while challenging, there are lenders who specialise in working with applicants with poor credit scores.
2. How much deposit do I need for a bad credit home loan? Generally, a deposit of 20% or more is recommended, though some lenders may consider as low as 10%.
3. Will having a guarantor improve my chances? Yes, a guarantor can provide additional security to the lender and may lead to better terms.
4. How long does it take to get approval for a bad credit loan? The process can take longer than standard loans, often up to several weeks, depending on the complexity of your financial situation.
5. Are there any additional fees for bad credit loans? Yes, you might encounter higher fees, including higher interest rates and lender's mortgage insurance.
6. Can I refinance my bad credit home loan later? Yes, once your credit improves, you may consider refinancing to a loan with better terms.
7. What should I do if my application is denied? If rejected, review the reasons why, improve your financial position, and consider reapplying in the future.

Remember, having bad credit doesn’t mean the end of your homeownership dreams. With the right guidance and determination, you can find a path to owning your home. At Esteb and Co, we’re committed to helping you navigate these challenges with access to a wide range of lenders ready to consider your unique situation.