Home Loans for Discharged Bankrupts

Getting home loan approval as a discharged bankrupt.

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, updated on August 8th, 2023       

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The experience of being declared bankrupt can be difficult to overcome, however if you wish to get your finances back on track and purchase property, luckily there are still options available to you.

Here we will explore the different types of home loans available to discharged bankrupts, as well as how you should go about putting yourself in the best position to secure a home loan moving forward.

Can I get a home loan as a discharged bankrupt?

Just because you have been bankrupt does not necessarily mean that you will not be able to find financing to assist you in buying a new home. It is true that more popular lenders such as Australia’s big banks and credit unions will not extend credit to those with a poor credit history, but despite this, there are a range of smaller lenders who specialise in loans for discharged bankrupts and other individuals with poor credit scores who will still be willing to offer you credit.

Loans from these specialised lenders will likely be subject to increased fees, higher interest rates and a greater deposit requirement. By using helpful online comparison tools like those offered by Savvy, you can easily view offers from multiple lenders in order to determine which loan will work best for you.

It is possible that your chances of securing a home loan once you have been discharged can be improved by practising responsible and disciplined financial management throughout your bankruptcy. By being able to provide lenders with proof of regular savings, effective budgeting and steady income, this may improve your chances of obtaining a home loan with more standard conditions.

How will being a discharged bankrupt affect my home loan offer?

The first and most straightforward limitation to acknowledge here is that you will have access to both a smaller range of possible financiers willing to lend to you and a smaller range of potentially favourable conditions attached to your mortgage.

Second to this, the main effect that your former bankruptcy will have on your access to a home loan is that you will enjoy less flexibility when it comes to structuring your loan, than what might be available to those with a healthier credit history who are borrowing from the big banks. Some of the things that you might notice about your discharged bankruptcy home loan are:

A higher deposit requirement

As a discharged bankrupt, lenders will accept a lower maximum loan to value ratio capped at 80%. This means that you will need to be willing to save a larger portion of the purchase price of your property to be paid as a deposit.

Higher interest rates

Non-bank lenders are smaller organisations who are unable to provide the same competitive, low interest rates as many banks can. For this reason, the total cost of your home loan over time will be greater than that of a regular mortgage as higher interest rates ultimately add more cost to your total repayments.

A Lack of loan features

Your discharged bankrupt home loan probably will not come with the same options and features as a home loan from one of Australia’s large banks. Examples of the features which you might be ineligible to receive include offset accounts, pre-approvals, a choice between a fixed or variable rate, and draw-down options.

Summarising the differences between regular home loans and discharged bankrupt home loans:

Regular home loan Discharged bankrupt home loan
Acceptable LVR of 95%.
Acceptable LVR of 80%.
Minimal fees.
Increased fees.
Minimum required deposit of 5%.
Minimum required deposit of 20%.
Standard documents required.
Additional documents such as a letter from your accountant may be needed.
Full range of features offered, e.g. Offset account, interest only options.
Very limited features offered, if any.
Regular interest rates.
Higher than usual interest rates.
Offered by big banks, credit unions, finance companies.
Offered by specialist, bad credit history lenders.

Lastly, it is important to recognise that even amongst discharged bankrupts, different individuals will find themselves in vastly different financial situations by the end of their bankruptcy term. This means that just the worst case scenario as described above will not necessarily apply to you, and that you may find that your home loan will be approved, albeit with additional costs.

Common home loan after bankruptcy questions

Which documents will I need if I'm a discharged bankrupt applying for a home loan?

When applying for a discharged bankrupt home loan, you will still need to provide all of the standard documents required before lenders can approve your loan, with the possibility that extra documentation might be needed to further support your financial eligibility for a loan.

Standard required documentation includes legitimate photo ID, proof of address, and bank statements showing proof of savings. Further documentation that you can provide could include a document confirming the discharge of your bankruptcy.

Will changing my job after becoming a discharged bankrupt help my home loan application?

It is generally considered prudent not to change job immediately before applying for a home loan, as lenders like to be able to see regular and reliable forms of income. This does not mean that you will not be approved should you change jobs in these circumstances, but it will introduce an extra variable that you might not wish for lenders to have to consider.

Which features should I look for in a home loan as a discharged bankrupt?

Unfortunately, it is unlikely that the loans available to you as a discharged bankrupt will come with some of the commonly sought-after loan features which come with loan offers from more popular lenders. With this in mind, the most important facet of a possible loan to pay attention to will likely be your interest rate- by locking in a loan with the lowest possible rate, you will hopefully be able to offset the negative effects of not being able to access a greater variety of loan features.

How can I improve my finances and credit score as a discharged bankrupt?

Simply making a commitment to minimising expenses, saving with discipline and being financially prudent will place you in a better position moving forwards. Furthermore, lenders will be able to see proof of financial responsibility, if you are able to provide evidence that you have paid your bills on time for services such as utilities (water and gas), rent and credit cards.

Can I improve my chances for home loan approval as a discharged bankrupt if I find a guarantor?

It is likely that you can improve a lender’s outlook towards your application by providing the lender with a guarantor who will add security to your home loan. It is worth noting, though, that by asking a friend or relative to act as your guarantor, you ask them to bear considerable responsibility. If you have the choice between improving your own financial situation and utilising a guarantor to improve your application, it may be more beneficial in the long-term to simply commit to improving your personal finances.

Can I renegotiate my home loan after some years have passed?

Because the terms of your discharged bankruptcy home loan might not be ideal for you in the long term, after several years of making regular repayments and strengthening your financial position you might wish to refinance your home loan. This could potentially result in more favourable terms such as a more moderate interest rate, lower fees, and more flexibility for your finances.

This refinancing process will work the same way as a regular refinancing process and potential lenders will still take note of your past bankruptcy, however with stronger evidence of your ability to repay your loan, you may be more likely to receive more standard home loan terms.

After my bankruptcy has been discharged, how soon can I apply for a home loan?

After three years of bankruptcy, provided you have met your financial obligations, your bankruptcy will be discharged.

While you will be eligible to apply for a home loan as soon as your bankruptcy is discharged, you might want to consider taking a period of time to build up proof of regular income, financial discipline, and to save for a large deposit in order to give yourself the best opportunity to acquire a home loan that works for you.

Is it possible to access discharged bankruptcy loans for purchasing other assets aside from property?

Absolutely! It is worth noting that it is also possible to access credit for other purposes, such as discharged bankruptcy car loans.

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