After putting in all the time and effort that a loan application requires, getting told ‘no’ by a lender is the last thing a home loan applicant wants to hear. Whether you are looking to refinance or apply for a first-time home loan in Essendon, getting declined by your lender is frustrating and may leave you asking, why me? We explore six common reasons why your application may have been rejected.
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Credit history or a credit score is a number that exhibits your reliability as a borrower. A credit score can come up low for a variety of reasons such as defaulting on repayments, missing payment schedules, and bankruptcy. Your credit score is taken very seriously and can greatly impact the success of your home loan application.
Sometimes a home loan applicant may think they have a clean bill of borrowing but aren’t aware of other factors that can affect their credit scores, such as buy now, pay later (BNPL) apps like Zip or Afterpay. While you may think paying off these ‘mini loans’ ahead of time looks good on an application, it shows the lender that you have a tendency to spend beyond your means, and it can come against you on your application.
If your credit score caused your refusal, there are ways to improve it. Focus on showing reliability as a borrower over a long period of time and refrain from using BNPL. If possible, avoid applying for any other credit besides your home loan application.
A healthy track record of saving suggests that you are regimented when it comes to managing money and therefore will be disciplined in overseeing your loan repayments. This is one of the main things lenders consider when looking at home loan applications. Failure to produce genuine proof of consistent saving for at least three months will greatly increase your chances of denial.
Adequate proof of savings can be exhibited in a multitude of ways, such as regular direct deposits into a dedicated saving account over at least six months, rental history to showcase you were on time with rental payments, shares, or funds held for over three months, and more. Your mortgage broker can help guide you through exactly what you’ll need to apply for a home loan in Essendon.
A general rule of thumb is to save at least 10-20% of the total cost of the home, that way you only need to borrow 80-90% from your lender. However, a common factor that home buyers often fail to consider is the hidden additional charges that come with purchasing a home.
These extra costs can include things like stamp duty, lender’s mortgage insurance, removalists, and more. To prepare for these costly surprises, it’s best to keep saving a little longer and have a buffer so these supplementary charges don’t negatively affect your loan application.
When assessing your home loan application, the lender needs to know that they’ll be able to sell the house quite easily should you default on your mortgage. This means that any particularly unique house may be attractive to you and your taste, but may not be favoured by the bank.
Banks are only interested in the marketability of your potential home, so choosing something that has environmental or location caveats may be a reason for your application to get denied. Reconsidering your property type may help your next home loan application getting approved.
Be prepared to be bureaucratic if you want a successful result. There are several documents banks will seek when assessing your home loan application. Failure to submit the right, up-to-date documents promptly is frustrating for the bank and will massively decrease your chances of approval.
The types of documents banks require are bank statements, employment details, contact information, property specs, details of your dependents and more. If your home loan application was denied because of this, it might be a good idea to hire a reputable accountant who can help you organise everything you need for a strong loan application.
Even if all your savings and paperwork are in order, your employment situation may affect the outcome of your home loan or refinance application. For instance, if you’re newly employed, then the short length of time you’re in your current role may not be favoured by some lenders, and being unemployed will lead to instant rejection. You may face some challenges if you are self-employed too, with more lenders wanting a minimum of two years of proof of self-employment.
As well as your employment circumstances, your salary will also be taken into consideration and cross-referenced with the cost of the loan repayments. If the lender forecasts that your loan repayments will encompass a substantial chunk of your household’s earnings, then it’s doubtful they’ll give you approval.
To explore your refinance options or learn more about a first-time home loan application, chat with the team at Mortgage Choice Essendon today.