Bad Credit Mortgage and Deposit Size
It can be hard to know how much deposit you’ll need to buy a property if you have bad credit. Saving for a deposit can take time and while you can’t get a home loan without a credit check, you still have options when it comes to securing a great deal that won’t cost you the earth.
In this article, we look at what deposit size you need, if you can still get a great deal with a smaller deposit, if you can get a home loan with no deposit, and much more.
Read on or click a link to jump ahead:
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[/vc_column_text][vc_row_inner][vc_column_inner width=”1/3″][/vc_column_inner][vc_column_inner width=”1/3″][tek_button button_text=”Get Started” button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” button_position=”button-center”][/vc_column_inner][vc_column_inner width=”1/3″][/vc_column_inner][/vc_row_inner][vc_empty_space][vc_separator color=”purple”][vc_empty_space][/vc_column][/vc_row][vc_row full_width=”stretch_row”][vc_column offset=”vc_hidden-lg vc_hidden-md”][vc_separator color=”purple”][tek_calltoaction cta_icon_type=”no_icon” cta_title=”We’ll match you with your perfect mortgage broker” cta_subtitle=”Save time & money with an expert who specialises in cases like yours.” cta_text_color=”#000000″ cta_button_link=”url:https%3A%2F%2Fwww.onlinemoneyadvisor.com.au%2Fcontact-us%2F|||” cta_button_text=”Get Started”][vc_empty_space height=”50px”][vc_separator color=”purple”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]How much deposit will I need for a bad credit home loan?
The amount of deposit you need will depend on numerous factors, including what type of bad credit you have, your income and employment type, your overall application, and the price of the property you wish to buy.
When it comes to getting a home loan with bad credit, the more money you can put down the better, as you’ll likely borrow less and decrease your loan-to-value. Therefore, lenders will see your application as less risky.
Each home loan provider has their own criteria to calculate and assess your application to figure out what sort of risk you pose and your ability to pay back the loan. The worse your adverse credit, the more risk it poses to the lender, so many lenders will require you to put down a larger deposit to offset their risk.
Most will ask for at least 20% deposit to help offset this risk – especially if you have a discharged bankruptcy on your credit file – meaning that you’ll need to borrow 80% of the property’s value.
However, depending on your circumstances, it’s not impossible to get a home loan with a smaller deposit – there are some lenders who may offer you a 95% LTV mortgage, for example. Make an enquiry and we’ll put you in touch with one of the experts we work with to see if this could be an option for you.
How different types of adverse credit impact deposit
Your deposit requirements may change depending on the type of adverse credit you have.
See the table below for a rough indication of how much deposit you may need depending on the type of bad credit you have:
| Adverse Credit Type | Est. Minimum Deposit Amount |
| No credit history | 5-10% |
| Low credit score | 5-10% |
| Late payments | 5-10% |
| Missed home loan payments | 10-15% |
| Default payment | 10-15% |
| Part IX debt agreements | 15-20% |
| Discharged Bankruptcies | 15-20% |
| ATO Tax Debt | 20-25% |
| Judgments or court writs | 20-25% |
| Multiple credit problems | 20-30% |
Can I get a home loan with a small deposit?
Yes, it’s possible to qualify for a low deposit home loan – even with bad credit – though it depends on your overall circumstances. If you don’t have much of a deposit, you may be able to take out a higher loan-to-value (LTV) to buy your property, though a lender may offer you higher interest rates.
There are some steps you can take to strengthen your profile prior to application:
- Strong income: A higher income means you may be able to borrow a larger amount, depending on the type of adverse credit you have.
- Stable employment: If you’re in full-time permanent employment, you may find getting a home loan easier compared with a self-employed individual or a contractor.
- Improve your credit rating: If you have time, you may be able to improve your credit rating. You could try credit building products such as a credit card which has a very small spending limit.
- Minimise debts: Use any excess cash to pay off your existing debts and avoid building up any new debts.
- Download your credit report: Download your free credit report from Experian and see what your credit score currently is. If your score falls below 509, you’ll be classed as ‘high risk’. You can also find and fix any errors on your report.
If your deposit size is under 20% of the property’s value, you could consider taking out Lenders Mortgage Insurance (LMI). This is a type of insurance designed to bail out the home loan provider should you default on your mortgage payments. With LMI in place, a lender may accept a smaller deposit as you have decreased the amount of risk they’re taking in lending to you.
It’s also worth noting that some providers may also add an extra 2% cover Lenders Mortgage Insurance capitalisation.
While most lenders prefer bad credit applicants to have a deposit of 20% or more, it may be possible for you to get a competitive home loan with a smaller deposit with the help of a bad credit broker, like the ones we work with.
Depending on the severity of your bad credit, they may be able to find deals with a deposit as low as 5%. Make an enquiry and we’ll connect you with an expert who can help you.
Can I get a low deposit home loan depending on location?
Potentially, yes. While it can be trickier to get a home loan with a fair rate, having a small deposit shouldn’t put you off getting the home of your dreams no matter where you live. However, it’s important to note that median home prices in capital cities will be higher compared to regional areas.
The amount of deposit you need will be affected by area, as a 5% deposit for a property in Sydney is likely to be much higher compared to a similar property in Adelaide.
According to CoreLogic data, the average median house price within 5km of Adelaide is $809,235, while a property within the same distance to Sydney would be almost $2.4 million. Therefore, a deposit in Adelaide would be $40,461.75, whereas a deposit in Sydney could set you back a whopping $120,000.
Your deposit amount will also be affected depending on whether you live in other locations such as:
- Queensland
- Victoria
- Perth
- New South Wales
- Melbourne
- Western Australia
If you’re looking to put roots down in a particular city or town, we can match you with a broker who has experience arranging bad credit mortgages for people in specific locations.
Can I get a better home loan with a large down payment?
Yes, if you have a deposit between 20% and 50%, your chances of getting a home loan with a competitive interest rate will likely increase. This deposit could come from savings, or by releasing equity in an asset. However, if you have bad credit, the interest rates offered may still be higher compared to someone with a ‘standard’ credit profile.
For the best home loans, speak with one of the experts we work with. They will be transparent about your prospects and search the entire home loan market to find you the most competitive deals.
Is it possible to get a no deposit home loan?
You can, though bear in mind that it will be a little trickier if you have bad credit. Most mortgage lenders prefer customers with a healthy deposit, though you may be able to secure a 100% LTV if you have a guarantor, if you’re able to borrow funds, or you already own a property with available equity.
For more information, read our guide to no deposit home loans.
What deposit percentage do I need?
Most home loan lenders prefer that you have a deposit of 20% to offset any risks posed by your credit issues. Depending on the type of adverse credit you have, your income and the overall health of your credit report, they may ask you to put down a larger deposit.
However, there are still lenders who would consider your application even if you have a much smaller deposit.
Below, we look at different deposit percentages and how they could affect the type of home loan you could get.
5% deposit
Buying a home with a deposit worth 5% of the property’s value is possible even with poor credit, for example, if you have a small paid default or unpaid credit card debts. You may wish to consider taking out Lenders Mortgage Insurance in order to secure a better deal from lenders.
However, for first-time buyers with a 5% deposit saved, you could benefit from the First Home Loan Deposit Scheme, which will help with the remaining 15% of your mortgage. You’ll still need to borrow 95% loan-to-value, but you’ll avoid paying LMI. Not all lenders are in partnership with this scheme, so you can work with a broker to find one that is.
If you’re looking for a 95% LTV home loan from a lender, the independent brokers we work with can help. They’ll be able to review your circumstances and source suitable deals from a variety of lenders.
10% deposit
With a 10% deposit, more lenders could be happy to give you a 90% LTV home loan if you have a default that’s fully paid off – whether large or small – or an unpaid default with the help of a specialist broker, like the ones we work with.
Again, you could benefit from taking out Lenders Mortgage Insurance, though if you’re a first-time buyer, you could also consider the First Home Loan Deposit Scheme (FHLDS), which is a government initiative to help first-time buyers get on the property ladder. It can help with deposits ranging from 5% to 20%.
15% deposit
This will still be considered a lower deposit amount, especially for a bad credit applicant, though you may have more options compared to the previous two percentages. If you can boost your deposit by a further 5% you could get access to more competitive deals, though if not, then the specialist brokers we work with can help you find an 85% loan-to-value home loan to suit your needs.
20% deposit
You could access better rates of interest if you can put down a 20% deposit, as this deposit amount is most preferred by lenders. While you don’t necessarily need an 80% LTV to get a home loan, it does mean that you’re less likely to need Lenders Mortgage Insurance to get a better rate.
25% deposit
You could potentially qualify for better deals at lower rates if you have a deposit worth 25% of your property’s value, as it demonstrates to the lender that you are serious about saving. If you have any other savings or you can raise more funds through a gift or assets, you could use these to reduce your mortgage amount and potentially save more money.
30% deposit
A 70% LTV mortgage would again potentially grant you even better rates, though if you have a severe credit problem such as bankruptcy or judgement, a lender may only agree to a loan if you put up a 30% deposit.
If you’re buying a commercial property, it’s very common for lenders to ask for a minimum deposit size of 30%.
If you’re unsure what size loan you’ll need in relation to your adverse credit, get in touch. The experts we work with will evaluate your circumstances and provide you with clear, honest feedback regarding your options.
40% deposit
A 40% deposit is a sizable amount, and even applicants with severe credit could get a fairer deal because lenders will view your application with less caution, especially if the funds are sourced from savings or equity.
50% deposit
A loan-to-value ratio of 50% is typically the lowest you can go. As an applicant with bad credit, a 50% LTV home loan could unlock a range of better rates and provide you with more choices than if you put down a smaller deposit.
Where can my deposit funds be sourced from?
Many lenders prefer deposits raised through your own savings, as it demonstrates that you are practical and responsible with money. However, there are other ways you can raise funds, including:
- Gifted deposit: This is a sum which typically comes from a close relative. They will have to sign a document to declare that the money is a gift and does not need to be paid back.
- Family guarantee: A member of your family can use the equity in their non-owner occupied property or a term deposit under a family guarantee. The guarantee is designed to cover a portion of the loan and could help offset any risk posed by bad credit.
- First-Time Buyers Deposit Scheme: We’ve touched on this above, and while you’ll still have to take out a 95% LTV home loan, the government will front up 15% of the property’s value if you have a 5% deposit to help you get on the ladder.
Can I take out a personal loan?
Technically you can, though many home loan lenders look negatively on applicants who took out a loan to pad out their deposit amount. This is because they want to actively see evidence that you are capable of being responsible with money and have actively put aside funds for the future.
What deposit will I need for an investment mortgage?
Again, it depends on your application as a whole, but as a rule of thumb for both residential and investment properties, it’s always good to have at least 20% of the property’s value saved to avoid paying Lenders Mortgage Insurance.
Affordability is going to be the lender’s main concern, so you will need evidence that you can afford to meet the repayments despite any credit issues.
Should I apply alone?
If you have bad credit and your partner doesn’t or vice versa, applying together could land you with a higher interest rate, though really, it’s up to you to decide how to apply. Lenders won’t average out your credit score or focus on the applicant with the lowest credit score, as they will still give more weight to the individual with the lowest score. If their credit is very bad, then your joint application could be denied altogether.
However, lenders also look at your income to decide how much they will lend you, so if you need your partner’s income to unlock a higher amount, it may be worth putting them on the application.
For the best advice tailored to your circumstances, speak with an expert broker. They can review both you and your partner to see what sort of mortgage you could get applying together versus applying alone.
Speak to a home loans expert
Whether you have bad credit or clean credit, you should always have the freedom of choice when it comes to owning your own home. The brokers we work with will evaluate your circumstances and be transparent about your options and the type of home loan you could get.
Make an enquiry and we’ll connect you with a broker for a free, no-obligation chat about your home loan.
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