Can I get a home loan with no credit history?

Can I get a home loan with no credit history?

If you prefer to avoid borrowing money wherever possible, you may run into some trouble when it comes to buying property. Not only is a home loan almost essential when it comes to Australian real estate, but having no credit history could make your mortgage application a little bit more challenging.

What is my credit history?

In Australia’s financial system, a record is created every time you apply to borrow money. Credit reporting agencies, sometimes called credit bureaus, keep track of each Australian’s credit history, which includes information on:

  • Credit products from the last two years (including credit cards, home loans, personal loans and more)
  • Repayment history (including payment amounts and whether or not you paid them on time)
  • Credit applications
  • Bankruptcies and debt agreements
  • Credit report requests (from banks, credit providers, or yourself)

How is my credit history used?

Your credit history is used to generate your credit score – a numerical value that banks and mortgage lenders use to quickly assess the risk of lending you money.

If you’ve successfully borrowed money and repaid debts in the past, you’re likely to have a good credit score. This means that a bank is more likely to accept your loan application and may even offer you lower interest rates or other features and benefits.

But if you have a history of loan defaults, bankruptcies, denied credit applications and late payments, you may have a bad credit score. This could lead to you being charged a higher interest rate on your home loan, or seeing your application denied altogether (which is also recorded in your credit history.

Why would I have no credit history?

There are two main reasons why you may have no credit history:

  1. You’ve never applied for a credit card, personal loan or similar credit product, and have never signed up for utilities or a phone or internet contract (such as if you’ve always used a pre-paid phone), and your home’s gas, electricity, water and internet have been in the name of your parents or spouse.
  2. You’ve recently arrived from overseas and are yet to organise your finances in Australia. Any financial history you had overseas doesn’t count towards your Australian credit score.

What does having no credit history mean for me?

Having no credit history means you have no credit score. Having no credit score makes you an unknown in the eyes of banks and other credit providers – they have no easy way to calculate the risk that you’ll default on your repayments if they give you a loan.

While having no credit history is generally considered to be better than having a bad credit history, banks and credit providers may assume a “worst-case scenario” when someone with no credit history applied for a loan. This may make it harder to successfully apply for a loan with a low interest rate or special features and benefits.

Can I apply for a home loan with no credit history?

Yes, you can. In fact, borrowers with no credit history may find it easier to successfully apply for home loans than for other credit products, such as personal loans or credit cards.

This is because a home loan is secured by the value of the property. Even if you were to default on your home loan repayments, the bank or mortgage lender could repossess the property and sell it to recover its money, reducing the financial risk.

Keep in mind that with no credit history, you may need to provide your lender with extra evidence that you’re a reliable borrower when you make your application. This may include extra proof of income and savings for your home loan deposit. Other terms and conditions may also apply, depending on the lender’s eligibility criteria.

Remember that even if you don’t get the lowest interest rate when you first apply for your home loan, after a few years of growing your equity and improving your credit history, you may be able to refinance to another mortgage offer.

Consider contacting a mortgage broker for more help finding a home loan for borrowers with no credit history, and assistance managing the mortgage application process.

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Learn more about home loans

What is a credit file?

A comprehensive summary of your credit history from an authorised credit reporting agency.

It includes your credit details, credit taken in the last five years, any default payments or credit infringements, arrears, repayment history, bankruptcy filings and a list of credit applications (including unapproved credit applications) in addition to your personal details.

What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.