Bad Credit Home Loans: Lender Checks and Evidence

Bad credit home loans are available when a lender’s credit criteria accept the specific event, how old it is and how the borrower has paid since. No lender approves every adverse file, so the lender route depends on the dated facts on the credit report.

The same file can fail one lender’s policy and fit another’s. Under Macquarie’s 10 September 2026 guidelines, a missed payment of 30 days or more on any account in the last 24 months stops the application.

Pepper Money’s 21 August 2026 product guide puts the same missed payment on a non-mortgage debt in its Near Prime tier. That tier also takes paid or unpaid defaults up to $3,000.

Identify the Credit Event

Identify each credit event by its type first, because lenders set different rules for enquiries, arrears, defaults and insolvency. A missed payment from last year and a default from four years ago lead to different lender routes. The Office of the Australian Information Commissioner (OAIC) sets out how long each type stays on a credit report.

Credit event	What the report shows	How long it stays
Credit enquiry	An application for credit, whether or not it proceeded	5 years
Arrears (repayment history)	A monthly code for each account: 0 means current, and higher codes show how many months overdue	2 years
Financial hardship information	Months under a hardship arrangement	1 year
Default	An overdue amount of $150 or more, at least 60 days late, after two written notices	5 years
Serious credit infringement	A listing more serious than a default	7 years
Court judgment	A court order for a debt	5 years
Bankruptcy	The bankruptcy and its discharge date	The longer of 5 years from bankruptcy or 2 years after discharge
Debt agreement	The agreement and when it ended	The later of 5 years from the agreement or 2 years after it was terminated

A missed payment counts once it is more than 14 days past the due date, according to the OAIC’s repayment history guide. A lender can’t list a default while it is deciding a hardship request, or until 14 days after it refuses one. Check whether a default was listed during a hardship request before you treat it as correct.

Separate Insolvency From Other Events

Bankruptcy and debt agreements need their own evidence workflow. Note the event, its dates and its status in the table, then follow the bankruptcy home loan guide for discharge evidence and retained debts. A Part IX agreement follows the Part IX debt agreement guide for payment and completion evidence.

Build the Dated Event Table

Record every event in one table before you contact a lender. Each row needs the amount, the dates, the status, the cause, the creditor, the reporting position and the evidence of resolution.

Field	What to record	Example entry
Event type	Enquiry, arrears, default, judgment, hardship or insolvency	Default
Creditor	The account provider and account type	Telco provider, mobile plan
Amount	The listed amount and any later balance	$1,850 listed, $0 owing
Dates	When the event happened, was listed and was resolved	Listed August 2025, paid December 2025
Status	Paid, unpaid, current, closed or in dispute	Paid
Cause	Your client’s explanation in their own words	Final bill sent to a former address after a move
Reporting position	What the report shows today and when the entry ends	Shows as paid, listed until August 2030
Resolution evidence	The document that proves the status	Creditor’s paid letter and bank transfer record

The reporting position decides how long the event affects lender choice. A default listed in August 2025 stays on the report until August 2030, even after it is paid.

Explain the Current Position

Match your client’s account of each event to the credit report, their statements and the payment or discharge evidence. The lender relies on the documents, so a story the report doesn’t support weakens the application.

Start with a current credit report for every applicant and guarantor. Then match each row of the event table to a source document.

• A paid default needs the creditor’s letter or a payment record. The OAIC says the listing stays on the report and the creditor updates it to show payment.
• Arrears need the account statements for the months involved and the months since, showing the account is current.
• A hardship arrangement needs the lender’s letter with its start and end dates. Macquarie then needs 24 months of acceptable conduct and 6 months of full repayments after the arrangement ends.
• An enquiry within the last three months needs a note saying whether that application proceeded. Macquarie’s 10 September 2026 guidelines ask brokers to confirm each one and list any new debt as a liability.

Errors and Correct Entries

An error on the report can be fixed for free. Moneysmart’s credit repair guide says your client can ask the credit reporting body or the lender to correct it. An unresolved dispute can go to the Australian Financial Complaints Authority (AFCA).

A correct entry can’t be removed, even when it is negative. Moneysmart also warns that paying a credit repair company may not improve a credit score. Work with the entries that are correct, and explain them with evidence.

Conduct Since the Event

Clean repayments after the event often decide the route as much as the event itself. Repayment history shows each month for two years, so twelve clean months after a missed payment are visible to every lender that reads the report.

Write a short explanation for each event, signed by your client. Macquarie’s guidelines require an explanation from the client for any adverse finding.

A clear cause, a resolution date and clean conduct since then give the lender a complete picture. Interpretation of the credit score itself belongs to the credit score guide.

Choose a Lending Route

Compare each lender’s credit criteria against the dated event table, keeping the equity, income and conduct facts the same. Prime lenders accept clean or minor history. Specialist lenders accept defined adverse events at a higher price, and waiting lets an event age into a cheaper route.

Prime and Specialist Criteria

Macquarie and Pepper Money show how far the criteria can differ, including the maximum loan-to-value ratio (LVR). The table compares Macquarie’s 10 September 2026 residential credit guidelines with Pepper Money’s 21 August 2026 product guide. Pepper Money’s guide labels its Near Prime Clear, Near Prime and Specialist tiers as non-conforming home loans.

Credit fact	Macquarie	Pepper Money Near Prime Clear	Pepper Money Near Prime	Pepper Money Specialist
Paid default	Up to $500 non-financial with an explanation, above $500 by exception only	Up to $1,000, paid or unpaid	Unlimited up to $3,000, and larger defaults listed over 24 months	Unlimited up to $3,000, and larger defaults listed over 12 months
Unpaid default	Not accepted	Up to $1,000	As for paid defaults	As for paid defaults
Missed payment on a mortgage	Code 1 (up to 29 days) considered, code 2 or worse in 24 months not accepted	Code 0 only	Code 0 only	Up to 1 month (code 1) in the last 6 months
Missed payment on other debts	As for mortgages	Up to 1 month in the last 3 months	Up to 3 months in the last 3 months	Up to 6 months
Bankruptcy	Bankrupts listed as unacceptable	Not listed in the guide	Accepted from 1 day after discharge	Accepted from 1 day after discharge
Maximum refinance LVR (full documentation)	Standard policy limits	95%	90%	85%

Pepper Money’s Specialist Plus tier goes further. It accepts unlimited mortgage arrears in the last 6 months and unlimited defaults from one credit event under 12 months old. It caps the loan at $1,000,000 and the LVR at 80%.

Pepper Money publishes its tiers on its broker home loans page. Its product guide puts a non-mortgage code of 2 or 3 in Near Prime and a mortgage code of 1 in Specialist. Very bad credit, such as recent mortgage arrears of several months, fits only Specialist Plus at Pepper Money.

Compare Three Routes Under the Same Facts

This hypothetical example compares a mainstream lender, a specialist lender and waiting, using one set of facts. Leah wants to refinance her $520,000 owner-occupied loan in October 2026. She also wants to add her $18,000 personal loan, so the new loan is $538,000.

Her home is valued at $800,000, which makes the new loan’s LVR about 67%. Her pay as you go (PAYG) income passes servicing at both lenders. Her credit report shows these events.

• A $1,850 telco default listed in August 2025 and paid in December 2025.
• A code 2 (30 to 59 days overdue) on the personal loan in March 2026, with every month since at code 0.
• Code 0 on her home loan for the full 24 months.

Route	What happens to Leah’s file	Cost and timing
Mainstream (Macquarie)	The March 2026 code 2 means Macquarie can’t proceed. The $1,850 default also needs an exception, because it is above $500.	No standard route until the code 2 leaves the 24-month window in April 2028
Specialist (Pepper Money Near Prime)	The default is under $3,000, so the paid listing is accepted. The code 2 on a non-mortgage debt sits in Near Prime, and 67% is under the 90% refinance limit.	Available now, with Pepper Money’s Near Prime pricing and the costs of switching
Wait and repair	Leah keeps her current loans and pays every account on time. In April 2028, the code 2 drops out of Macquarie’s window.	The default still needs a Macquarie exception until it leaves the report in August 2030

Waiting moves Leah closer to prime criteria, but only partly. The specialist route consolidates her debt now and changes her repayments now. Compare Pepper Money’s current rates and fees for Near Prime with what Leah pays on her two existing loans during the wait.

When a lender needs an exception, Bulma’s Scenario Planner shows the known exception pathways across 52+ lenders. Each pathway carries a confidence level of Documented, Precedented or Reported. An exception pathway isn’t written policy, so confirm it with the lender’s business development manager (BDM).

Evidence for an Exception Request

An exception request asks a lender to accept a fact its standard policy doesn’t. Macquarie’s guidelines refer a default above $500 to the BDM and require the client’s explanation.

Support the request with the facts that reduce the lender’s risk.

• The cause of the event, and why it won’t happen again.
• Proof the debt was paid, with the date.
• Statements showing clean conduct on every account since the event.
• The LVR and the servicing surplus under the lender’s own calculation.
• Stable employment and income, with payslips.

Specialist Lending Is Not Always About Credit

Specialist lending covers lenders and products for scenarios outside standard criteria, and adverse credit is only one cause. Pepper Money’s Alt Doc options, for example, assess income from a declaration plus six months of business bank statements or business activity statements (BAS), among other documents. That route solves an income documentation problem, not a credit problem.

Identify which fact pushes the file outside standard policy before you choose. Income, security and borrower-structure exceptions belong to the specialist lending guide, and income evidence without tax returns belongs to the low-doc home loan guide.

A self-employed borrower with adverse credit faces both tests. Pepper Money’s Specialist Alt Doc needs 6 months of Australian Business Number (ABN) registration. Its Near Prime Alt Doc needs 12 months with clear credit, or 24 months otherwise.

Refinancing With Bad Credit

Assess a bad credit home loan refinance on the existing debt, repayment conduct, available equity, the purpose of the new loan and the switching costs. The credit event alone doesn’t decide it.

• Existing debt and conduct: the current mortgage’s repayment history matters most. Macquarie may ask for six months of statements on a loan being refinanced and accepts no more than one missed payment resolved within 30 days.
• Equity: the LVR sets the tier limit. Pepper Money’s Near Prime refinance limit is 90% with full documentation, and Specialist’s is 85%.
• Purpose: debt consolidation and cash out change the lender’s view. Pepper Money’s Near Prime and Specialist tiers accept Australian Taxation Office (ATO) debts in consolidation, while Prime excludes tax and business debt.
• Switching costs: Moneysmart lists break fees on fixed loans, discharge fees, application fees, lenders mortgage insurance (LMI) under 20% equity and possible stamp duty.

Banks that will refinance with bad credit need the event to fit their limits. At Macquarie, every account must stay at code 1 or better for 24 months, and a default above $500 needs an exception.

A home equity loan or cash out against the property follows the same tests, with the purpose of the funds checked as well. The refinance requirements guide covers the general refinance file.

Private Loans and Mortgage Security

When your client asks for a private loan, classify its purpose and security first. A loan secured by a residential mortgage for a home purchase or refinance follows the lender routes on this page. Pepper Money’s product guide says it will refinance private and solicitor loans.

A personal-purpose loan with no mortgage security is a different assessment. Route a confirmed personal-purpose request to the private loans with no credit check guide. Company funding without property security belongs to the unsecured business loan guide.

No Guaranteed Approval

No bad credit home loan has guaranteed approval. The Australian Securities and Investments Commission (ASIC) explains the responsible lending obligations in Regulatory Guide 209.

A lender must make inquiries, verify the borrower’s financial situation and assess whether the loan is unsuitable. That assessment covers the borrower, the loan purpose, serviceability, the security and the evidence.

A lender offering guaranteed approval before it has seen those facts can’t meet that test. As a bad credit mortgage broker, you also act under the best interests duty, which ASIC explains in Regulatory Guide 273.

Construction Loans With Bad Credit

A bad credit construction loan adds the construction checks to the adverse credit assessment. The lender reviews the land, the builder, the contract, the progress payments, the valuation and the cost to complete.

Macquarie’s 10 September 2026 guidelines show the construction side. They need a fixed-price contract with a fully licensed builder and a progress payment schedule that isn’t front-loaded. A valuer’s comment or Macquarie’s standard stage totals can show that the schedule is acceptable.

LVR is based on the lower of the on-completion value or the land value plus contract price, up to 80%.

Then find a lender route that accepts both sets of facts. Pepper Money’s 21 August 2026 product guide lists Near Prime Construction, which accepts Near Prime credit up to 95% LVR with full documentation.

The guide lists no Specialist construction product, so a file that needs Specialist credit has no Pepper Money construction route. The construction loan requirements guide covers the build checks in full.

First Home Buyers and Pensioners

For first home buyers with bad credit, establish the deposit source before comparing credit tiers. Macquarie’s guidelines need 5% of the price as genuine savings above 85% LVR. Pepper Money’s guide doesn’t require genuine savings on Near Prime Clear, Near Prime or Specialist loans.

The deposit question has its own guides. The 5% deposit scheme guide covers the government guarantee, and the no deposit home loan guide covers bad credit combined with a small deposit.

For home loans for pensioners with bad credit, establish which income the lender accepts before applying its credit rules. Pepper Money’s guide counts a Centrelink pension at 100%, but a borrower with most income from Centrelink is limited to 75% LVR and must service at 1.25 times. The pension home loan guide covers accepted pension income.

Rural Property and Vacant Land

Security rules can rule out a specialist route before credit is assessed. Pepper Money’s guide lists rural properties among the securities it won’t lend on. Its Prime and Near Prime loans accept vacant residential land only in location categories 1 and 2, up to 5 acres.

The rural property home loan guide covers rural security in full.

Prepare the Scenario

Prepare the scenario by disclosing every adverse fact and its supporting document before you ask a lender for a response. A lender that finds an undisclosed event during assessment can decline a file it would have accepted with the full picture.

Adverse fact	Document to supply
Every credit enquiry in the last three months	A note of whether each application proceeded, and any new debt listed as a liability
Each default, judgment or serious credit infringement	The credit report entry, the creditor’s paid letter or payment record and your client’s explanation
Missed payments on any account in the last 24 months	Statements for the months involved and every month since
Hardship arrangements in the last 12 months	The lender’s letter showing the start and end dates, and statements since
Bankruptcy or a debt agreement	The evidence set out in the bankruptcy or Part IX guide
Tax debts and payment plans	Current ATO statements and the payment plan letter
Debts being consolidated	Statements showing each balance and repayment
Any private or solicitor loan	The loan agreement, statements and the payout figure
Guarantees your client has given	The guaranteed loan’s details and its current conduct

Write the scenario summary in the order a credit assessor reads it. Start with the loan purpose, LVR and income, then the event table, then the conduct since. Point each adverse fact to its document.

Understand Non-Conforming Mortgage Risk

A non-conforming mortgage raises the borrower’s repayment and exit risks, because it usually costs more and leaves fewer refinance options. Impaired credit history moves the borrower into a higher-priced tier, and that price applies until the borrower can move.

The Reserve Bank of Australia (RBA) measured this in its March 2005 review of non-conforming housing loans. Rates were 1 to 3 percentage points above standard home loans, and more than 4 points higher for higher-risk loans. Lenders also charged early repayment fees when a borrower left within a set period, usually four to six years.

Repayment and Exit Risks

Higher repayments leave less room for a rate rise or an income drop. Exit depends on clean conduct, because a borrower refinances to a cheaper tier only after the event ages and repayments stay on time. A missed repayment on the specialist loan resets that clock and can push the borrower into a higher tier.

The RBA’s 2005 data showed nearly 4% of securitised non-conforming loans by value were 90 or more days in arrears at the end of 2004. That compared with 0.2% of other securitised loans and banks’ housing loans. The same review found that rates rose with the level of credit impairment and the LVR.

Australian Evidence Over US Sub-Prime Comparisons

Use dated Australian figures when you explain the risk, and avoid comparisons with the US sub-prime market. In 2005, the RBA put Australian non-conforming loans at up to 4% of new housing loans by value, less than half the share in the US and UK. It found about two-fifths of non-conforming lending went to borrowers with impaired credit, and the rest to borrowers with irregular income or other non-standard features.

Current RBA data covers non-bank lending as a whole, which includes prime loans. The RBA’s March 2026 Financial Stability Review puts non-bank housing loans in arrears a little below 1%, only slightly above banks. That figure doesn’t measure non-conforming loans alone.

No specialist lender accepts every adverse credit scenario either. Pepper Money’s 21 August 2026 product guide still caps Specialist Plus at 80% LVR and $1,000,000, and it excludes rural properties.

Before you recommend a specialist loan, set its price against the realistic date your client’s file can move to a cheaper tier. Record that comparison in your notes.