Jul 03, 2019

Our Insights

Despite historically low interest rates, banks are under increasing pressure to restrict their approach to home loans for would-be borrowers.

Banks want every possible guarantee that you’re not going to default on your loan and cost them money. Add to this pressure arising from the Banking Royal Commission and Productivity Commission - there has never been more scrutiny on the banks. Unfortunately, this makes it harder for you get the home loan you want or need, as  lending policies and criteria is tightened. 

To get a complete picture of your trustworthiness, banks look at virtually every aspect of your financial life

Most loans are rejected because an applicant comes up short in one or more areas of the bank’s stringent loan requirements.

Being rejected looks bad on your financial history and can automatically disqualify you for other loans in the future. So knowing the main reasons loan applications get rejected can help you avoid road blocks and mistakes, and secure the loan you need to me forward with your life.

Here are the key factors leading to a home loan application rejection.

Poor credit history

Your bank will take a close look at your credit history to determine whether or not you qualify for a loan. It’s best to get your credit history whipped into shape by paying down credit cards and any other debts. As a rule, always take care of debts and loans as a black mark on your credit history could block your home ownership dreams, even years down the track.

You don’t have a large enough deposit saved up

Depending on your lender and the type of loan you’re applying for, you’ll probably need a 10 to 20% deposit towards the purchase of your new home. The more you have saved, the better positioned you are in the eyes of the bank.

You don’t have steady income

Banks want to see that you have a history of working in the same workplace for an extended and stable period or that you’re successfully running your own business for a number of years. It’s not enough to just show up with money for a deposit. You also have to present proof that you can earn that kind of money consistently and there's no risk of you being out of work and unable to keep up with your repayments.

You haven’t made smart spending and saving decisions

Everything from poor debt management to uncontrolled spending to not having a savings account suggests to a lender that you may not be responsible enough to handle a loan.

The bank wants to lend money to someone with a great track record of money management. If you’re not responsible enough with your money, then your lack of self-discipline will show in your bank statements and account activity.

You’re interested in a property that’s a little out of you league

You should apply for a loan on a property that’s reasonable for your circumstances. Even if you’re good at saving and paying off debt and have healthy spending habits, a bank won’t loan you the funds for a home that you simply cannot afford. Low-income earners may be denied a loan if the lender deems a property too expensive for them given their earning capacity.

You’re trying to buy a property the bank doesn’t like

Maybe the property you’re interested in is listed as more expensive than it’s really worth. The bank doesn’t want to be saddled with a loss in the event you have to turn over the property to them and they can’t recover the full value of the money they lend you. So if the property is incorrectly valued, this can invalidate your application.

There could be a combination of reasons why a lender doesn’t like the property you’re applying for a loan for, including location, property type and more.

The big takeaway here is that applying for a loan isn’t a game of chance. You can’t just keep applying until you’re approved since multiple attempts can damage your credibility.

Your best approach to a loan application is to work closely with an experienced mortgage broker, who can guide you through the process, and take your time to ensure you tick every box. If your application is denied, take some extra time to build up a reliable history of financial self-discipline so that you have something to show the next time you do apply.

It is important to have a plan. Know exactly what you want and work diligently towards your goal.

And importantly, because the loan qualification requirements can vary from lender to lender, it helps to work with a mortgage broker who can canvas many different lenders and products to find one that is the best fit for your circumstances.

Talk to an expert

An experienced mortgage broker can draw on their market experience to give you crucial advice as well as helping you find the best possible loan deal.

Calder Financing Broking can find you the best deal for your needs, and guide you through the process.

Contact the team or call directly on 08 8373 3333 to meet an experienced broker today for a free, no obligations discussion about your needs.

Written and Supplied by Cliff O’Connell of Calder Finance Broking, for more information please visit the Calder Finance website. Please note that Calder Finance Broking Pty Ltd is a Corporate Credit Representative of BLSSA Pty Ltd ABN 69 117 651 760 ACL 391237.