Securing a Home Loan with Paid Defaults: What You Need to Know

Understanding Paid Defaults

Paid defaults occur when a borrower fails to meet the payment obligations on a credit account, such as a credit card or personal loan, but subsequently pays off the outstanding amount. These defaults are recorded in your credit history and can remain there for up to five years. While having paid them off is a positive step, the record itself can still impact your credit score and your ability to secure a home loan.

Lenders' Perspective on Paid Defaults

Australian lenders typically view any default, whether paid or unpaid, as a risk factor. From a lender’s perspective, a history of default suggests potential future credit issues. However, many lenders are willing to consider the circumstances surrounding the default, such as its age and the reasons behind it. Generally, the older the default, the less impact it may have, especially if you've demonstrated improved financial management since then.

How to Improve Your Chances of Approval

1. Improve Your Credit Score: Start by obtaining a copy of your credit report and ensuring all details are accurate. If you notice any discrepancies, contact the credit reporting agency to have them corrected. Focus on making timely payments on all current debts to boost your credit score over time.

2. Save a Larger Deposit: A larger deposit reduces the lender's risk and can offset the perceived risk of your defaults. Aim for at least 20% of the property's value to avoid lenders mortgage insurance (LMI).

3. Demonstrate Financial Stability: Providing evidence of stable employment and consistent income can reassure lenders of your ability to meet loan repayments. Detailed budgeting and proof of saving habits will further strengthen your position.

4. Consider Specialist Lenders: Some lenders specialise in providing home loans to individuals with bad credit histories, including paid defaults. These lenders assess applications differently and may offer more flexible terms.

Common Mistakes to Avoid

• Ignoring Your Credit Report: Many applicants neglect to review their credit reports before applying for a mortgage. This can lead to unpleasant surprises and reduced chances of approval.

• Applying for Too Many Loans: Each loan application creates a new enquiry on your credit report. Multiple enquiries can lower your credit score, so it's essential to apply strategically and not indiscriminately.

• Overlooking Professional Advice: Navigating home loans with defaults can be complex. Engaging a professional mortgage broker can provide you with tailored advice and access to a broader range of lenders.

How Esteb and Co Can Help

At Esteb and Co, we understand that life doesn't always go as planned, and financial setbacks can occur. Our team of experienced mortgage brokers is dedicated to helping you find the right lender and loan to suit your needs. We will guide you through every step of the application process, from improving your credit score to identifying lenders who are more likely to approve your application despite past defaults. With our expertise, we aim to make your home-buying journey as smooth and stress-free as possible.