How to Get a Home Loan with a Default

A default happens when you miss a payment for more than 60 days and the creditor reports it to a credit bureau.

It stays on your credit file for five years from the date it was listed, not from the date you paid it. Lenders see defaults as a signal that you've struggled to meet a financial commitment in the past, which makes them cautious about lending to you now. But a default doesn't mean you're locked out of the housing market. Different lenders apply different rules, and the details of your default matter more than the fact that it exists.

How Lenders Assess Your Default

Lenders look at three things when they see a default on your file: how much it was for, how recently it was listed, and whether you've paid it.

A $150 unpaid phone bill from three years ago that you've since cleared will be treated very differently to a $5,000 unpaid personal loan from six months ago that's still outstanding. Most mainstream lenders will decline an application if you have an unpaid default over $1,000, or any default listed in the past 12 months, regardless of the amount. Specialist lenders are more flexible but will price the loan higher to reflect the perceived risk. If you've paid the default, ask the creditor for a letter confirming payment and keep it ready for your broker. Some lenders will accept a paid default older than 24 months if the rest of your credit file is spotless and you can show consistent savings or rental payment history since then.

Should You Pay the Default Before Applying

Paying the default improves your position, but it doesn't remove it from your file or restart the five-year clock.

Consider a buyer who has a $2,400 default from a gym membership they stopped paying two years ago. They're now ready to apply for a home loan but unsure whether to clear the debt first. Paying it will shift the status from unpaid to paid, which opens the door to more lenders, particularly if the default is older than 18 months. But if the default is recent and paying it will drain your savings below the deposit level you need, it might make more sense to wait, build your deposit further, and apply through a specialist lender who will accept unpaid defaults. The outcome depends on your full financial picture, including how much deposit you've saved, your income stability, and whether you have other credit issues on file.

What Counts as a Default in Western Australia

Defaults can come from utilities, phone bills, buy-now-pay-later services, personal loans, credit cards, car finance, or rent if it's been reported through a tenancy database.

In Western Australia, missed rental payments are less commonly reported as defaults compared to the eastern states, but it does happen if the property manager uses a formal tenancy database and you leave with arrears owing. Defaults under $150 are not reported to credit bureaus, but anything above that threshold can be. The most common defaults we see from clients in Perth and surrounding areas are telecommunications bills, energy accounts, and Afterpay or Zip debts that went unpaid after the account was closed. If you're unsure whether something you owe will become a default, check your credit file through a free service before it escalates.

Loan Options When You Have a Default

You have three main pathways depending on your situation: mainstream lenders with strict credit policies, second-tier lenders with more flexibility, and specialist non-conforming lenders.

Mainstream lenders such as the major banks will generally only consider you if your default is paid, older than two years, under $1,000, and you have no other credit issues. Second-tier lenders, which include some smaller banks and credit unions, may accept a paid default older than 12 months or an unpaid default under $500 if your income and savings are solid. Specialist lenders will consider multiple defaults, recent defaults, or larger unpaid defaults, but the interest rate will be higher, sometimes by 1% to 3% above standard variable rates, and they may require a larger deposit. If you're applying under the Australian Government 5% Deposit Scheme, most participating lenders have the same credit rules as mainstream lenders, so a default may disqualify you unless it's minor and paid.

How a Broker Helps You Get Approved

Brokers have access to lender credit policy guides that aren't published online, which means we know which lenders will accept your situation before you apply.

As an example, a buyer in Baldivis had a $3,200 default from a car loan that went unpaid after they lost their job 18 months earlier. They'd since found stable work, saved $45,000, and paid the default in full. We placed the application with a second-tier lender who accepted the default because it was paid, the buyer had been in their current job for over 12 months, and they could show regular savings over the past year. The loan was approved at a rate only 0.4% higher than the major banks, and the buyer avoided a declined application that would have added another mark to their credit file. Without a broker, they would likely have applied to their own bank first, been declined, and lost time and confidence in the process.

Rebuilding Your Credit Position Over Time

Once you have a home loan with a default on your file, your goal should be to refinance to a lower rate once the default ages or falls off.

Make every mortgage repayment on time, avoid applying for new credit, and keep your credit card balances low or paid off in full each month. After two years of clean repayment history, most lenders will view you as a much lower risk, even if the default is still on your file. If you're on a higher rate with a specialist lender, talk to your broker about refinancing once the default is three years old and you've built some equity in the property. Refinancing at that point can save you thousands over the remaining loan term and move you back into the mainstream lending market.

A default isn't the end of the conversation. It's the start of a more detailed one about your circumstances, your goals, and which lender will say yes. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions