Can You Get a Mortgage If You Have a Default?

Yes, you can get a mortgage if you have a default on your credit file. Approval depends on the type, size, and age of the default, along with your overall financial situation right now. Some lenders will decline you outright, but others are set up specifically to work with people in your position. This article walks you through what lenders look at, which types of defaults cause the most concern, and how to structure your application so it gets approved.

What Is a Default?

A default is a listing that appears on your credit file when you fail to make payments on a debt for 60 days or more, and the creditor reports it to a credit bureau. It stays on your file for five years from the date it was listed, even if you pay it off the next day. Defaults can come from unpaid phone bills, credit cards, personal loans, buy-now-pay-later accounts, or utility bills.

If you ignore a default long enough, the creditor may sell the debt to a collection agency or take legal action to recover the money. In some cases, this can escalate to a court judgment, which is treated even more seriously by mortgage lenders. The earlier you address a default and the smaller the amount, the less damage it does to your chances.

Type	Meaning
Paid Default	You've settled the debt in full. Lenders view this more favourably than an unpaid default, but it still affects your application.
Unpaid Default	The debt remains outstanding. This signals ongoing financial difficulty and limits your options to specialist lenders.
Telco/Utility Default	Smaller amounts (often under $500) from phone or power bills. Many lenders are more lenient with these, especially if paid.
Credit Card/Loan Default	Larger amounts from financial products. These are treated more seriously and reduce your chances with major banks.
Recent Default (under 12 months)	Listed within the last year. Most major banks will decline your application automatically.
Aged Default (over 24 months)	Older than two years. Your chances improve significantly, especially if you've managed credit well since then.

🔎 Tip: Order a free copy of your credit file from Equifax before you apply for a mortgage. You need to know exactly what lenders will see, including defaults you may have forgotten about.

Can You Still Get Approved?

Yes, approval is possible, but the path you take depends on how many defaults you have, how much they're for, and how long ago they were listed. Major banks have strict policies and will often decline applications with recent or unpaid defaults. Specialist lenders and non-bank lenders have more flexibility and assess your situation as a whole, not just the default.

✅ To Qualify with a Major Bank:

• Maximum of one or two small defaults (typically under $500 each)
• Defaults must be paid in full
• At least 12 to 24 months must have passed since the default was listed
• No other credit issues such as court judgments, bankruptcies, or missed payments in the last 12 months
• A deposit of at least 10% to 20%, depending on the lender
• Steady income with payslips or tax returns to prove serviceability
• A clear explanation of what caused the default and evidence that the situation has been resolved

✅ To Qualify with a Specialist or Non-Bank Lender:

• Can have multiple defaults, including unpaid defaults, depending on the lender
• Defaults can be larger (some lenders accept defaults over $1,000)
• Recent defaults (even within the last six months) may still be acceptable
• No minimum time period required since the default was listed
• Deposit requirements vary:
  • Some lenders accept 5% to 10% deposits
  • Others may lend at higher LVRs if you have strong income or equity in another property
• Less emphasis on a long savings history
• Income can come from PAYG employment, self-employment, or a combination of sources
• Higher interest rates apply, typically 0.5% to 2% above standard variable rates
• Some lenders charge upfront or ongoing fees

How to Improve Your Chances

1. Pay off any unpaid defaults immediately. Even if the default stays on your file for five years, a paid status shows lenders you've taken responsibility. This opens up more lender options and improves your negotiating position.

2. Wait as long as you can before applying. The older the default, the less weight it carries. If your default is six months old and you can wait another six months, you'll qualify for lower rates and better loan features.

3. Save a larger deposit. A deposit of 15% to 20% reduces the lender's risk and gives you access to better interest rates. Some specialist lenders will approve you with 10%, but a larger deposit always strengthens your position.

4. Avoid applying for new credit. Every credit application leaves an enquiry on your file. Multiple enquiries in a short period suggest financial stress and can result in an automatic decline, even from specialist lenders.

5. Prepare a written explanation. Lenders want to understand what caused the default and why it won't happen again. If you were between jobs, had a medical issue, or went through a relationship breakdown, put it in writing with supporting documents where possible.

6. Check your credit file for errors. Defaults are sometimes listed incorrectly or remain on your file longer than five years. If you find an error, lodge a dispute with the credit bureau and wait for it to be corrected before applying.

7. Work with a mortgage broker who knows which lenders say yes. We match you with lenders who will actually approve your application based on your specific situation. This saves you time, protects your credit file from unnecessary enquiries, and gets you a result faster.

Comparison: Major Banks vs Specialist Lenders

	Major Banks	Specialist Lenders
Approval Speed	2 to 4 weeks	1 to 2 weeks
Credit History Rules	Strict. Maximum 1-2 small paid defaults, aged over 12-24 months.	Flexible. Accept multiple defaults, unpaid defaults, and recent defaults.
Deposit Requirements	Minimum 10% to 20% genuine savings	From 5% to 10%, less emphasis on savings history
Interest Rates	Lower variable and fixed rates	Higher rates, typically 0.5% to 2% above standard
Loan Features	Offset accounts, redraw, no ongoing fees	Limited features, may include upfront or ongoing fees
Refinancing Options	Easier to refinance once defaults age or you build equity	Can refinance to a major bank after 12 to 24 months of clean repayment history

💡 Our Advice: If you need to buy now and a major bank has declined you, use a specialist lender to get into the property. After 12 to 24 months of clean repayments and no new credit issues, refinance to a major bank for a lower rate and better features.

Real-World Example

Consider a buyer who had two unpaid defaults totalling $1,200 from a Telstra bill and an Afterpay account. Both were listed eight months before they started looking for a property. Their bank declined the application outright, even though they had a 15% deposit and steady income as a teacher.

We matched them with a non-bank lender who accepted the unpaid defaults and approved the loan at 85% LVR. The interest rate was 1.2% higher than the major bank rate, but they were able to purchase the property and avoid losing the contract. After 18 months of making every repayment on time, we refinanced them to a major bank at a lower rate, saving them over $300 per month.

Talk to a Mortgage Broker

Your Go-To Mortgage Broker for Defaults

Yes, you can get a mortgage with a default. The key is applying with the right lender and structuring your application so it highlights your strengths, not just your credit history.

Home Loans Hub works with borrowers who have defaults, missed payments, and other credit issues that make major banks say no. We're based in Sydney and we know which lenders will approve your application based on your situation right now. Whether you're buying your first home, upgrading, or investing, we'll find a lender who says yes and get you a home loan that works. Our service is free.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions

Can I get a home loan with an unpaid default?

Yes, specialist lenders and non-bank lenders will consider applications with unpaid defaults. You'll pay a higher interest rate and may need a larger deposit, but approval is possible if your income is strong and the default amount isn't excessive.

How long does a default stay on my credit file?

A default stays on your credit file for five years from the date it was listed, regardless of whether you pay it off. After five years, it's automatically removed and no longer affects your ability to borrow.

Will paying off a default improve my chances of getting a mortgage?

Yes, paying off a default improves your chances significantly. A paid default is viewed more favourably than an unpaid one, and it opens up more lender options, including some major banks if the default is small and aged.

Do I need to explain my default to the lender?

Yes, most lenders will ask for a written explanation of what caused the default and why your financial situation has improved since then. We can help you write one that addresses the lender's concerns without over-explaining.

Can I refinance to a lower rate after getting approved with a specialist lender?

Yes, after 12 to 24 months of clean repayment history with no new credit issues, you can refinance to a major bank for a lower rate and access to features like offset accounts. We help clients do this regularly.

Frequently Asked Questions