TL;DR Summary
Bad credit home loan deposit requirements range from 10% (minor issues) to 30%+ (recent bankruptcy or active insolvency). LMI is generally not available to bad credit borrowers, which is why larger deposits are required. Genuine savings of 3+ months are expected. A specialist broker can identify which lender has the most favourable deposit requirement for your exact situation.
Why Bad Credit Home Loans Require More Deposit
Standard home loan applications can be approved with as little as a 5% deposit when using the First Home Guarantee, or 10% with Lenders Mortgage Insurance (LMI). But for borrowers with adverse credit history, these pathways are mostly unavailable.
The reason is simple: lenders assess the risk that a borrower will default. If your credit history shows you have defaulted on obligations before, lenders demand more "skin in the game" before approving a loan. A larger deposit reduces their exposure in the event of default. Additionally, LMI insurers — who backstop loans above 80% LVR — will not insure bad credit applications, forcing specialist lenders to cap their own exposure at 80% LVR.
Understanding what your specific credit situation means for deposit requirements is critical. If you have defaults on your file, read our detailed guide on home loan with defaults in Australia first.
Deposit Requirements by Credit Severity
There is no single answer to "how much deposit do I need" — it depends on the type and severity of your credit issues:
| Credit Situation | Typical Min. Deposit | Notes |
|---|---|---|
| Minor blemish (1 small paid default, 3+ years old) | 10% | Specialist lenders; strong income required |
| Moderate issues (multiple defaults, some unpaid) | 15–20% | Depends on default ages and amounts |
| Discharged bankruptcy (1–2 years post-discharge) | 20% | Some specialists consider 15% with strong case |
| Completed Part IX debt agreement | 20% | 15% possible with clean post-completion record |
| Active insolvency / recent mortgage default | 25–30% or declined | Very limited lender appetite |
Can LMI Help With Bad Credit?
In standard lending, LMI allows borrowers to purchase with less than 20% deposit by insuring the lender against loss in the event of default. The borrower pays the LMI premium (either upfront or capitalised into the loan).
However, LMI insurers in Australia — primarily QBE and Arch Insurance — conduct their own credit assessment before agreeing to insure a loan. Borrowers with bankruptcy, Part IX debt agreements, multiple defaults, or recent financial stress will almost always be declined by LMI insurers.
There are some waived LMI products available for certain professions (medical, legal, accounting), but these are not accessible to bad credit borrowers. The bottom line: for bad credit home loans, you should plan for a 20% deposit requirement and not count on LMI to reduce that threshold.
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The Genuine Savings Requirement
It's not enough to simply have the deposit amount — specialist lenders want to see that the money was accumulated through disciplined saving. This is what lenders call "genuine savings."
Genuine savings typically means:
- Held in your name for at least 3 months — the money should be in a savings account in your name and demonstrably stable
- Regular deposits showing a pattern — a salary-crediting savings account with consistent top-ups is ideal
- Not a recent lump sum — $80,000 appearing in an account last week raises questions; $80,000 accumulated over 18 months tells a positive story
- At least 5% of the purchase price — many specialist lenders require at least 5% of the property value in genuine savings, even if the remainder of the deposit is gifted
Use the Repair Period Productively
The time spent building your credit record post-default or post-discharge is also the ideal time to build your savings. 12–18 months of consistent saving simultaneously improves your credit trajectory and builds deposit. A specialist broker can also advise on credit repair strategies that run in parallel with your savings plan. Use our stamp duty and deposit calculator to understand your total purchase costs including stamp duty.
To explore your bad credit home loan options in more detail, read our guides on bad credit home loans, specialist lending solutions, and how to approach lenders after a bank knockback.
Frequently Asked Questions
The First Home Guarantee allows 5% deposit without LMI for eligible buyers, but participating lenders still apply their own credit policies. Most FHBG lenders will decline bad credit applications. Specialist non-bank lenders who would approve you typically do not participate in the FHBG scheme.
Not always. For minor credit blemishes — a single small paid default more than 3 years old — some specialist lenders may consider 10–15% deposit. For more significant issues (bankruptcy, Part IX, multiple defaults), 20% is typically the minimum. Each case is assessed individually by the lender.
Yes, but typically only part of the deposit. Most specialist lenders require at least 5% of the purchase price in genuine savings in your name. The rest can be a gifted deposit, provided it is unconditional (not a loan) and evidenced by a statutory declaration from the donor.
Generally no. Australian LMI insurers (QBE, Arch) decline to insure loans for borrowers with significant credit issues. This is why bad credit home loans almost always require a 20%+ deposit — the lender cannot transfer the risk to an insurer, so they require a larger buffer.
Most specialist lenders want at least 3 months of genuine savings history — regular deposits demonstrating financial discipline. Ideally, aim for 6 months. Consistent saving over time tells a better story than a large lump sum appearing recently, even if the dollar amount is the same.
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