Can you avoid a credit check and still get a home loan?
The short answer is no: all lenders do a credit check on every home loan application.
However, there are other options available if you have a less than perfect credit record.
If every lender does a credit check, what can I do?
You can still find great deals with a bad credit home loan.
There are lenders that will still lend to borrowers with bad credit for up to 90% of the property value including Lenders Mortgage Insurance (LMI), a one-off fee generally charged when borrowing more than 80% Loan to Value Ratio (LVR).
If you have a good reason for having a bad credit history backed by strong evidence, you can still get a home loan through some lenders that can accept bad credit records including discharged bankruptcy, part IX agreement, defaults, missed repayments, judgments and court writs.
Qualifying criteria for bad credit home loans
If you apply with a specialist lender, you’ll have a good chance of getting approved for a bad credit home loan even if your credit file has:
- Single small paid default: You can borrow up to 90% of the property value if you have already paid for a small default of less than $500 six months ago. In some cases, we can even help you borrow up to 95% LVR.
- Multiple small paid defaults: You can borrow up to 85% LVR if you have less than $1,000 in paid defaults from financial institutions such as banks, and less than $500 in paid defaults from non-financial institutions such as a Telco default.
- Moderate paid defaults: We can help you borrow up to 80% LVR with a major bank, up to 90% LVR with a specialist lender or even up to 100% LVR with a guarantor home loan if you have already paid a default of no more than $3,000.
- Large paid defaults: If you have a large paid default ranging from $3,000 to $500,000, we can help you borrow up to 90% LVR with a specialist lender if you have a good explanation for the default, backed by proof. However, please note that cases like these are considered on a case by case basis.
- Unpaid defaults: With a non-conforming lender, you can borrow up to 90% LVR if you have any unpaid defaults. However, most lenders may need you to pay the defaults before granting loan approval.
- Judgments or court writs: You can borrow up to 90% LVR with a non-bank lender if you have judgments or court writs in your credit file.
- Part IX agreement: If you’ve completed a part 9 debt agreement and have around 16% of the purchase price as a deposit, you can borrow up to 90% LVR.
- Bankruptcy: If you’re discharged bankrupt, you can borrow up to 90% LVR depending on your situation and the size of your deposit, which should be at least 14% of the purchase price to cover your deposit, stamp duty and LMI.
You’ll need to prove that you can afford the loan and can meet all other lending criteria. You can check out our bad credit home loans page for more information.
Wait for your credit to clear to get a better deal
- Defaults, judgments and clearout listings.
- Overdue accounts and court listings.
- Crossed or linked files.
- Multiple identity issues, and more.
By avoiding more negative listings while waiting for your credit to clear, you can improve your credit score and get a better deal with a major bank.
Don’t underestimate the power of your deposit
While you can’t take a home loan without a credit check, with a strong deposit, you can still get a good deal on a bad credit home loan.
Lenders require that you put up at least 10% of the purchase price as a deposit to cover the costs involved in buying the property, of which at least 5% is genuine savings.
Genuine savings are typically savings that you’ve held or accumulated over 3 months and can include shares or managed funds. Most lenders require genuine savings if you’re borrowing more than 85% LVR.
For a better chance of qualifying, it’s recommended that you save a deposit before applying for a bad credit home loan.
What costs are involved when buying property?
When buying a property, you’ll likely have to spend up to 5% of the purchase price on government fees, duties and charges, specifically:
- Purchase stamp duty: This tax is levied by your state government and it’s usually the largest expense.
- Mortgage stamp duty: This tax is levied by your state government based on the mortgage size. Luckily, it has been abolished in most states.
- Transfer fee: A transfer fee needs to be paid for removing the vendor’s name from the property title and registering yours.
- Registration fee: This fee is for registering the lender’s mortgage on the property title. However, this cost will be reimbursed by the vendor at settlement if they have a mortgage on the property.
For example, if you’re buying a $500,000 property in NSW for residential purpose, the estimated mortgage stamp duty is $17,990 with a $214 transfer fee and $107 registration fee. You don’t have to pay mortgage stamp duty in NSW.
You can use the Purchasing Costs Calculator to get an estimate on these costs.
Do I need to pay any additional costs?
Aside from government fees, duties and charges, you’ll also have to pay for:
- Conveyancing costs: Expect to pay around $800 to $1,500 to hire a conveyancer or solicitor to handle the transfer of the property into your name.
- Building and Pest Inspections / Reports: You may need up to $600 for a building inspection, pest inspection and a strata report. This can be discussed with your solicitor.
- Loan fees: Some lenders may charge you up to $900 on application fees, settlement fees and valuation fees. Please note that not all lenders charge for these.
- LMI costs: If you’re borrowing more than 80% LVR, or more than 60% LVR in the case of a low doc loan, you’ll have to pay LMI.
You can discuss with your solicitor about these costs as well as any other costs such as property repairs and renovations.
Why do lenders perform a credit check?
Credit checking also fulfils the requirement of responsible lending set by the National Consumer Credit Protection (NCCP) act.
However, even if you’re assessed as a high risk borrower, it doesn’t mean that you can’t make your payments. There are lenders that may consider other aspects of your loan application if you have a low credit score.
Our mortgage brokers know which lenders can assess your application favourably.
Call us on 1300 889 743 or complete our free online assessment form and we can help you even if you have a low VedaScore.
What happened to no credit check home loans?
No credit check home loans did exist in the past but with the introduction of the Uniform Consumer Credit Code (UCCC), most lenders went on to complete a credit check.
As credit reporting in Australia vastly improved, it became more effective and more lenders started using it to assess a home loan application.
When the NCCP act was introduced, it effectively ruled out any home loan without a credit check as irresponsible lending.
No credit check home loans didn’t meet the requirement “to make reasonable enquiries” or “to take the steps to reasonably verify the borrower’s situation”.
Currently, there are only no credit check personal or car loans available.
No credit check home loans FAQs
Are there interest rate discounts with bad credit home loans?
The simplest way to get a great interest rate despite bad credit is by applying with a major bank since specialist lenders charge anywhere between 2-4% higher than standard interest rates.
You can apply with a major bank without having to meet additional requirements as long as your bad credit history is limited to a paid non-financial institution debt of less than $1,000 such as a missed electricity, water or telco bill.
If you don’t qualify with a major bank, you may still be able to get a slightly lower interest rate with a non-bank lender. For a better chance of qualifying, you’ll need to have:
- Minor bad credit history: Some specialist lenders may consider your application on a case by case basis if you have small paid defaults of less than $1,000, provided that you have a single bad credit record only.
- Proof that you’re a low risk borrower: You may qualify if you’re a high income professional such as an accountant, doctor or lawyer or you’re in a low risk profession such as nursing or teaching.
- Stable employment: You must have been in your current job role for 3 to 6 months and completed probation. You’ll need to have been working in the same industry for at least 2 to 3 years if you’ve changed jobs recently.
- Standard property: The property you’re buying must not be an unusual property that isn’t easily saleable. The postcode location guide can help you check the risk level of your property location.
When should I refinance my bad credit home loan?
Once you can meet standard bank criteria, you can refinance a bad credit home loan and move to a major bank. This means that:
- Your home loan should be currently at 80% LVR or preferably less. Some banks may even consider 90% LVR on a case by case basis.
- Your defaults and other adverse listings must be all paid and must not appear on your credit file.
- You must be able to prove your income through payslips, tax returns and/or an accountant’s letter. In the absence of full income evidence, you may take out a low doc loan instead.
- You must have been making perfect repayments on your home loan for the last 6 months.
If you don’t qualify with a major bank, you can still refinance to a cheaper specialist lender before going with a major bank.
How can a mortgage broker help me?
Our mortgage brokers specialise in bad credit home loans. Although there aren’t any no credit check home loans, they can still help you prepare a strong application and apply with the right lender for your personal situation.
Besides getting you approved, we also prioritise setting up a home loan with the intent of refinancing you back to a major lender when your credit history is clear.
Call 1300 889 743 or complete our free online assessment form if you want to check how your situation stacks up.