Can you buy your first home with bad credit?
Yes, but the deposit matters more than usual. Banks and many scheme lenders use credit scoring with firm cut-offs. Specialist lenders read the whole file, and most want more of a deposit from first home buyers with credit problems, because there's no equity history to fall back on.
Government schemes and bad credit
The Australian Government's Home Guarantee Scheme helps eligible first home buyers purchase with a smaller deposit and no lenders mortgage insurance. Loans are only available through participating lenders, and each applies its own credit rules. Minor, older or paid-off issues may be fine. Serious recent issues usually aren't.
State first home owner grants and stamp duty concessions have their own rules and don't usually depend on your credit file, so check your state's revenue office.
A plan that works
- 1
Get your credit reports
Know exactly what lenders will see. Fix genuine errors for free.
- 2
Settle what you can
Paid defaults are judged far more kindly than unpaid ones.
- 3
Save consistently
Regular savings over several months prove you can handle repayments.
- 4
Avoid new credit
No new cards, buy now pay later or payday loans in the months before applying.
- 5
Enquire before you apply
We'll tell you which lenders fit, so you only apply once.
More detail: how to fix bad credit before a home loan.
Could a guarantor help?
A family member who offers equity in their own home as extra security can reduce the deposit you need. Some lenders accept guarantors for borrowers with minor credit marks. It's a serious commitment for the guarantor, so they should get independent advice.
A worked example
A couple in their late twenties want to buy their first unit. One has a paid $700 utility default from two years ago and a few late credit card payments from the same period. They've saved a 10% deposit over 18 months with no issues since.
A lender participating in the Home Guarantee Scheme declines under its credit policy. A specialist lender accepts the older, paid default and approves them with a slightly higher deposit requirement met with family help. They plan to refinance in two years.
First home buyer costs to budget for
- Deposit.
- Stamp duty (often reduced or waived for first home buyers, depending on your state and the price).
- Conveyancing and legal fees.
- Building and pest inspections.
- Lenders mortgage insurance, if applicable.
- Moving costs and a buffer for the first months.
Check your state revenue office for first home owner grants and concessions; these don't usually depend on your credit file.
What you’ll need
- Photo ID
- Credit reports
- Payslips or income evidence
- Bank statements showing savings
- Explanation of credit issues
- Proof of paid defaults
- Contract of sale, if you've found a home
Who it usually suits
- First home buyer
- Genuine savings and a deposit
- Stable income
- Credit issues explained and ideally settled
- Australian citizen or permanent resident
