Having your home loan application rejected – possibly more than once – can be extremely frustrating.
This is particularly true if you are unaware of the real reasons why lenders are saying NO!
Applying for a home loan is a big deal, and can be a nerve-wracking experience. A home loan is probably the biggest investment you will make in your lifetime, and probably the largest debt you’ll ever have.
Also important to remember is that a rejected home loan application may remain on your credit file, which doesn’t help when it comes to applications in the future.
Here we have presented some common reasons why you may be experiencing home loan application rejections, along with tips to help you get that well sought after approval.
When lenders undertake a check on your credit history, it’s difficult to keep anything from your past under wraps.
Unpaid bills to utility or phone companies dating way back, missed car repayments, credit card debts…it’s likely these will all show up on your credit history check, regardless of how recent or dated they are.
If you’re unsure of your current credit rating, and to avoid any surprises, you can check your credit history online in Australia on a number of websites within minutes.
If you do have a credit history that isn’t going to look so great to potential lenders, be up-front. Lenders will do a credit check regardless, so you will be looked at even less favourably if you try to hide your credit history.
Home Loan Deposit
The deposit amount required for your home loan may depend on a number of factors.
You may learn you need a bigger deposit than you’ve saved, the market may change, or the lender may not be willing to lend as much as you were hoping.
Many lenders won’t let you borrow more than 80% of a property’s value, or require mortgage insurance if you do, so it’s a good idea to be aware of the particular lender’s conditions before you lodge your application.
Your mortgage broker will have a good idea of most lender’s criteria, so check with them beforehand to increase your chances of being approved.
Having equity in another property or properties will also be looked upon favourably.
Your current income will influence how much a lender is willing to lend.
If your income is considered low to medium, your chances of being approved for a loan on a high-priced property are slim.
In Australia, lenders are required to give loans responsibly and have certain rules they must abide by. If your income and the amount you want to borrow don’t match up, it is likely your application won’t be approved.
The lender will use your income and any debts you may have to calculate the mortgage repayments they consider you can afford. It’s a great idea to do this yourself beforehand, or with your mortgage broker, so you have a good idea of what you can afford in reality.
When applying for a home loan, your employment status will be checked. Lenders will want to know your employment history and have some assurance that your employment is stable.
Ideally, you will have been in your current position for a substantial timeframe – say a couple of years. If not, approval is still possible, but you may be considered a higher risk applicant.
A track record of savings will also be requested, which is usually ascertained via your bank statement. This is to prove you are able to cover the repayments and that the loan amount you are applying for is within your means.
Lenders will usually request to sight your bank statement dating back three months.
A professional valuer will be required to establish the property’s worth to confirm it is worth what you are proposing to pay.
If the valuer deems the property doesn’t match the sale price, your application may not be approved.
The location of the property must also be deemed sound and can be a major factor to the lender and the valuer when considering the property’s value.
The valuer and lender will also consider the property’s condition, including aesthetic and structural issues.
Third Party Rejection
Despite being approved by the lender, if you intend on borrowing more than 80% of the property value, you will still need to be approved by the lender’s mortgage insurer, who may not be as keen to support the application.
The lender may consider this mortgage insurance necessary if you are applying to borrow over 80% of the value of the property.
Engaging a professional mortgage broker is a great way to give you a better chance of a home loan approval at the outset. Mortgage brokers have a wealth of experience and tips to ensure your chances of being approved are high and to help you determine a realistic borrowing amount.