If you're denied a home loan, it's important to understand why. There could be a number of reasons your application was rejected, and it's important to identify the issue so that you can address it and improve your chances of being approved in the future.
Default on Credit Reports
One of the most common reasons for a loan denial is a default on your credit report. A default is typically a late payment of more than 60 days on a debt, but can also refer to a failure to pay a debt that has been sent to collections.
If you've had debt in collections, it's important to settle it and remove it from your credit report before applying for a home loan.
Inadequate Income
The other major reason for a loan denial is inadequate income. Lenders use your income to determine if you can afford the monthly mortgage payments. If your income is too low or if you have a history of irregular paychecks, you may not be approved for a loan.
You may be asked to provide tax returns, payslips and other documentation to prove your income. If you are self-employed or work on commission, you may need to provide additional documentation to prove your income.
Insufficient Deposit
The deposit you make when purchasing a house is used to cover the down payment and closing costs. If you don’t have enough money for a deposit, you may not be approved for a loan.
When you're applying for a home loan, your lender will have a requirement for the loan-to-value ratio (LVR). This is the minimum amount of deposit that you'll need for the purchase of the property. The standard LVR is 80%, which means you'll need to be able to pay for 20% of the property's value yourself.
Other Debts and Financial Obligation
Your lender will also take into account any other debts or financial obligations you may have when considering your loan application. This includes credit card debts, personal loans, and any other regular payments you may have.
If you have a lot of other debts, your lender may decide that you're not able to afford a mortgage. This could lead to your application being denied.
Inaccurate Information
If you provide your lender with inaccurate information, your application could be rejected. This includes providing false information about your income, employment, or debts.
If you're not sure whether the information you're providing is accurate, you may want to ask a financial advisor or accountant to check it for you.
No Savings History
If you have no savings history, you may have a harder time getting approved for a loan. Lenders often like to see that you have a history of saving money and using it wisely, which can indicate that you're likely to pay back your loan.
If you don't have much of a savings history, you may want to start saving up now so that you can show lenders that you're capable of saving money.
To Sum Up
In conclusion, if your home loan application is rejected, there are a few things you can do. First, you can try to find out why your application was rejected. Second, you can try to improve your financial situation and reapply. Finally, you can look into other financing options.
In the second part of this post, we will discuss more about home loan rejection and what you can do about it.
Get the best home loans in Sydney here at Wealthy You. We have been servicing Sydney for almost ten years now and we offer various mortgage solutions to meet your specific financial needs. Get in touch with us.
