10 Ways to Get a Home Loan After a Default

A default on your credit file feels like a full stop, particularly when you're already managing the financial aftermath of a separation.

It's not. Lenders look at defaults differently depending on what caused them, how old they are, and what your circumstances look like now. Some lenders will decline outright. Others have overlays that allow them to lend with a default on file, especially if you can show that the issue has been resolved and your financial position has stabilised.

The difference between getting approved and getting declined often comes down to knowing which lenders work with your specific situation and how to frame your application in a way that addresses their concerns upfront.

What Counts as a Default and Why It Matters

A default is listed on your credit file when a debt over $150 remains unpaid for more than 60 days and the creditor has issued formal notice. It stays on your file for five years from the date it was listed, even after you've paid it.

Lenders see defaults as a signal of credit risk. They want to understand whether the default reflects a temporary setback or a pattern of missed payments. A single utility default from two years ago during a separation is treated very differently to multiple defaults across credit cards and personal loans.

Some lenders will only accept defaults that are older than 12 months and fully paid. Others will consider unpaid defaults if you can demonstrate genuine hardship at the time and stability since. The key is matching your situation to a lender whose credit policy allows for it.

How Lenders Assess Your Application With a Default

Lenders look at three things when they see a default on your file: how many, how recent, and how much.

One default under $1,000 that's been paid and is more than two years old is rarely a barrier with specialist lenders. Multiple defaults or anything over $5,000 narrows your options significantly. If the default is under 12 months old, most lenders will ask for a letter of explanation and evidence that the issue has been resolved.

In our experience, separating couples often have defaults that relate directly to the breakdown of the relationship. A joint account that wasn't monitored, bills that fell through the cracks during a move, or a partner who stopped contributing to shared debts. That context matters, and lenders will consider it if it's explained clearly and supported by evidence.

Your current financial position also plays a role. If you can show consistent income, regular savings, and no missed payments since the default, lenders are more likely to view it as a one-off event rather than an ongoing issue. This is where getting loan pre-approval becomes particularly useful, as it lets you know early whether your application will be assessed favourably.

Specialist Lenders vs Major Banks

Major banks have automated credit scoring systems that often decline applications with defaults before a human even reviews them. Specialist lenders, also called non-conforming or near-prime lenders, have manual underwriting processes that allow for more flexibility.

These lenders charge higher interest rates than the major banks, typically between 1% and 3% above standard variable rates. That's the trade-off for accepting higher credit risk. The rate you're offered depends on the size of your deposit, the age of the default, and whether it's been paid.

Consider someone who has a $2,500 default from 18 months ago that's now paid. They've been renting and saving steadily since then and have a 15% deposit. A specialist lender might approve their application at a rate 1.5% higher than a standard variable rate. After 12 months of clean repayment history on the new loan, they could refinance to a lower rate with a mainstream lender.

The goal isn't to stay with a specialist lender long term. It's to use them as a stepping stone to rebuild your credit file and move to a lower interest rate once you qualify.

How Long You Need to Wait After a Default

Timing matters. The older the default, the wider your loan options.

Most specialist lenders will consider applications with defaults that are at least six months old and paid. Some will work with defaults that are still unpaid if you can show you're in a payment arrangement and have been meeting it for at least three months.

If your default is under six months old, you're likely looking at a wait. That time isn't wasted. Use it to stabilise your income, clear other small debts, and build a savings buffer. The stronger your application looks in every other area, the more willing a lender will be to overlook an older default.

For separating couples, this waiting period often aligns with the broader timeline of finalising property settlements and restructuring finances. If you're planning to buy your next home after the separation is formalised, the delay can actually work in your favour by giving you time to improve your credit position.

Paid vs Unpaid Defaults

A paid default is always viewed more favourably than an unpaid one, but it doesn't remove the listing from your credit file.

Once you've paid a default, the status updates to show it's been satisfied, but the record remains for five years. Lenders will still see it, but they'll also see that you took steps to resolve it. That distinction can be the difference between approval and decline.

If the default is still unpaid, some lenders will ask you to clear it before they process your application. Others will allow it to remain unpaid if you're in a payment plan and can show evidence of consistent payments. The trade-off is usually a higher interest rate and a lower maximum loan to value ratio.

In a scenario where two ex-partners are applying separately for home loans for divorce couples, one with a paid default and the other with an unpaid one, the person who cleared theirs will have access to more lenders and lower rates, even if the defaults were originally the same amount.

The Role of Your Deposit Size

The bigger your deposit, the more willing lenders are to overlook a default.

A 20% deposit gives you access to lenders who might decline the same application with a 10% deposit. It also removes the need for Lenders Mortgage Insurance, which can be harder to obtain when you have adverse credit.

If you're working with a smaller deposit, say 10% or less, your options narrow, but they don't disappear. Some specialist lenders will lend with a 10% deposit and a paid default, though you'll pay LMI and a higher interest rate. If you're accessing equity from a property settlement, the size of that equity directly affects which lenders you can approach.

For clients managing both a default and a smaller deposit after separation, we regularly see them prioritise increasing the deposit over rushing into a purchase. An extra $10,000 to $20,000 in savings can shift the application from marginal to approvable.

How Joint Defaults Affect Separated Couples

If the default is on a joint account or loan, it appears on both credit files, even if only one person was responsible for the missed payments.

This is a common source of frustration for separating couples. One partner may have kept up their side of the agreement, but if the account was joint and the other person defaulted, both are held accountable. Lenders don't distinguish between who was at fault. They see the default and assess both parties accordingly.

The only way to address this is to provide context in your application and demonstrate that your current financial management is solid. If you've been managing your own accounts independently since the separation and have had no further credit issues, that history carries weight.

In some cases, it's worth considering whether debt consolidation loans for divorce couples might help clear joint debts and simplify your credit file before applying for a new mortgage.

What Documentation Lenders Require

When you apply for a home loan with a default on your file, lenders will ask for a written explanation, often called a letter of explanation or credit impairment letter.

This letter should be factual, brief, and focused on what caused the default, what steps you took to resolve it, and why your circumstances have since improved. Avoid emotional language or blame. Stick to the facts and provide supporting documents where possible, such as proof of payment, bank statements showing savings since then, or evidence of changed circumstances like a new job or stable rental history.

Lenders also want to see that you've had no other credit issues since the default occurred. They'll review your bank statements closely for any signs of missed payments, dishonours, or ongoing financial instability. The cleaner your statements, the stronger your case.

When Refinancing Can Help Rebuild Your Credit

If you currently own property and have a default on your file, refinancing to consolidate debts or access equity might not be immediately available through a major bank, but specialist lenders can still help.

Once you've rebuilt your credit history over 12 to 24 months, you can refinance again to a lower rate with a mainstream lender. This strategy is particularly relevant for people who kept the family home in the settlement and need to refinance to buy out their ex-partner but have a default from the separation period.

Refinancing isn't just about accessing funds. It's also a tool for improving your credit file by demonstrating consistent, on-time repayments on a new loan. That track record matters more to future lenders than the default itself, as long as enough time has passed.

Working With a Broker Who Understands Your Situation

Not all brokers have access to specialist lenders, and not all brokers understand how to structure an application when there's a default involved.

You need someone who knows which lenders will work with your specific situation, how to present your application to address their concerns, and what documentation will strengthen your case. A broker with access to non-conforming lenders can often get an application across the line that would have been declined by a major bank.

For separating couples, the stakes are higher. You're often managing tight timelines, limited deposits, and the added complexity of a property settlement. A default on top of that doesn't need to derail your plans, but it does require careful planning and the right lender match.

Call one of our team or book an appointment at a time that works for you. We'll review your credit file, talk through your options, and work out a clear path forward that takes into account both the default and your broader circumstances.

Frequently Asked Questions