“I need a loan but keep getting declined.”
You’ve probably heard the horror stories of people who tried to get an application for mortgage only to have their application rejected. It can be devastating and disheartening. But don’t worry – there are often several reasons why this might happen, and many of them are within your control.
In this blog post, we’ll take a look at some of the most common reasons why banks might turn down a mortgage application, and what you can do to increase your chances of being approved. So if you’re feeling anxious about your pending mortgage application, read on for some helpful advice.
Some questions around application for mortgage
What is a pre approval home loan?
A pre-approval home loan is when a lender agrees to give you a certain amount of money for a mortgage, before you’ve chosen a property. It’s like an insurance policy for buyers – it means you can shop with confidence, because you know how much money is available to you.
Pre-approval is also handy because it shows sellers that you’re serious about buying. And the earlier you get pre-approval, the better, because it gives you more time to find your dream property.
PRO Tip: If this is your first home buyer loan, then make sure to shop around and compare interest rates and features between different lenders.
What happens after pre approval?
After pre-approval, the next step is finding a property. The pre-approval process is designed to help home buyers find their ideal property and to ensure they are able to obtain a mortgage.
How long does a mortgage application take?
For a first home buyer, it usually takes about two to four weeks to get the mortgage application process started. This includes gathering all of the required documentation and submitting it to the lender.
Once you’ve submitted your application, the lender will review it together with your credit score, income, and debt-to-income ratio. If everything looks good, the lender will approve your loan and you’ll move on to the closing process.
If there are any red flags with your application, the lender may request additional documentation or reject your application altogether. So it’s important that you provide all of the necessary information.
15 Reasons why your mortgage application could be rejected
There are points during your mortgage application where it can get rejected:
- Loan declined after pre approval: you were pre approved for a mortgage or you got the conditional approval then denied by the lender
- Loan declined before settlement: You didn’t get approved for unconditional approval.
Whichever the case, below are the most probable reasons for getting your application denied:
- Change in employment status (recently changed jobs or just got unemployed)
- Insufficient paperwork/details or incorrect information
- Small deposit amount (less than 20% of the property value) and unable to pay Lenders Mortgage Insurance or doesn’t have a guarantor
- Low debt-to-income ratio, A.K.A. insufficient income
- Existing debts (e.g., Afterpay, HECS-HELP debts, buy-now-pay-later (BNPL) accounts, personal loans)
- Questionable spending habits as verified by your bank account records and transactions
- Lack of genuine savings (i.e., no savings for at least 3 months)
- Lying on your application for mortgage
- On or about to go on maternity leave
- Approaching retirement
- Bad credit score
- The property in question is not favoured by your lender (e.g., property doesn’t meet the lending criteria)
- Updates in the lender’s requirements during your application that you’re unable to comply with (e.g., an increase in interest rates, change in lending policies)
- Any changes or major upheavals in your life that can compromise you financially
- Making one too many joke transactions
What to do if your loan application got rejected?
For situations like loan declined after conditional approval (or before) and after unconditional approval (this is a rare occurrence), here’s what you can do:
- Save up more to reach the threshold of 20% deposit
- Get a credit report to know how you can improve your credit score
- Demonstrate reliability as a borrower by living within your means and sticking to a realistic budget
- Create a regular savings account which you will regularly deposit to so it can qualify as genuine savings
- Pay off as much of your debts as you can, if not all of them
- Avoid incurring more debts
- Pay your bills on time
- Keep your job stable
- Choose a property that meets the lending criteria of most lenders
- Avoid applying to too many lenders in a short amount of time
- Get the right home loan for your unique situation (ask a mortgage broker how!)
What are the lender’s legal obligations if they decline an application?
Under the Responsible Lending Conduct, credit providers have obligations under the Credit Law in relation to responsible lending. They will tell you the reason for rejecting your application
This regulation is important because it represents an attempt to ensure that consumers are only given loans they can afford to repay.
Make ZEP Finance your choice for first home buyers mortgage broker
At ZEP mortgage brokers, we understand that life doesn’t always work linearly and every customer’s situation is different. That’s why we pride ourselves in taking the time to not just assess each individual’s needs and circumstances, but also to find the lending policy that best suits your situation.
We make sure that when we do present your loan package for approval, there is a minimal chance of refusal. Your mortgage journey starts with us studying your current condition before jumping into uncharted waters. With this, you have the confidence to make all the important decisions in your search for the right home loan.
After studying business and finance at university, Zain initially expected to pursue a career in finance. However, his passion for property and the experience of buying his own home led him to mortgage broking. He began his mortgage brokering career in 2009 and founded ZEP Finance in 2010.
