You’ve saved your deposit, made an offer, done the paperwork, jumped through all the hoops only to be given a big fat no by the bank. Here are some of the reasons the bank might say no to your home loan application.
Your deposit is too small
Most banks need you to have, at the very minimum, a 5% deposit saved up. Most prefer you have closer to 10-20% though plus costs (which is to cover stamp duty, application fees, etc.).
You have bad credit history
All lenders in Australia will check your credit file when you apply for a home loan. If you have bad credit history such as not paying on time, defaulting on loans, multiple credit accounts in place this all affects your credit worthiness. A bad credit history can be one of the reasons the bank might say no to you.
Bad conduct in the past
Some of the major lenders are really tough on people who were past clients and had bad conduct. This means even up to 10 years ago, if you missed credit card repayments or were overdrawn, they’ll be harder on your application than someone who banked somewhere else.
Your employment status
If you are unemployed, have been in your current job less than 12 months or been self-employed for less than 2 years then the lender may decline your application. There are ways around this in some instances, so it is worth chatting with a broker upfront before you apply to understand how best to ensure your success.
You’re over the age 45
Recently lenders have begun to require solid exit strategies in place. If you are applying for a 30-year loan at age 45, the bank will want to know how you plan on making repayments on the loan after you retire. If you haven’t got a plan in place, then they may decline your home loan.
The property is not suitable security
Many banks want to ensure the property you are buying is going to be a good investment for them. If they have to sell the house because you default on your loan down the track, they want to know they are going to get their money back.
Some properties which are harder to finance include; tiny homes, high-density CBD apartments smaller than 50sqm, rural property on acreage or close to certain landmarks like transmission power lines.
They might not like where you are buying
This might come as a shock, but some lenders have blacklisted certain postcodes. If you try to buy a property in these areas you may be knocked back, even if every other aspect of your home loan application is acceptable.
Some postcodes are blacklisted due to being at high risk of floods or cyclones, others due to the kind of developments and building that is taking place. As is often said when it comes to property, location is everything.
Your expenses are too high
Lots of people are happy to make changes once they get their loan, as they know the importance of making their repayments. But many lenders want to see you can manage this before they offer you a loan. This means three months of good spending conduct, ensuring you don’t spend more than you earn.
If you are spending too much, then the lender may knock you back until you can get it under control. They like to see that you can manage your money, won’t neglect to make essential payments on your loans and that you are able to budget responsibly.
You have too much debt
Some banks use a debt to income ratio to determine how much they are going to lend. So whilst you may be able to make repayments on all of your debt comfortably, if your debt to income (DTI) ratio creeps up too high, they won’t be able to lend you any more.
Not disclosing important information
Lying on your application is a sure-fire way to get knocked back. If you have a credit card or loan you took out but didn’t mention or left off something crucial like HECS repayments, child support or your employment status and the bank finds out, they will be pretty hesitant to want to approve your application.
It could also affect your ability to get a loan somewhere else if you needed LMI. There are only two LMI providers in Australia. If they know you’ve been declined by one bank for non-disclosure, chances are you are going to be declined by every other bank that also uses that LMI company.
You’re about to have a baby
If you are pregnant and about to go on or have just started maternity leave, the banks might not approve the loan. The main reason being loss of current and future income. Even if you receive maternity leave payments and are planning to return to work once those payments are ended, the bank won’t consider offering you the loan until after you’re back at work.
If you are deciding whether to buy a house or have a baby, it could be smart to get the house out of the way first to improve your chances of getting approved.
Your residency status
Some lenders won’t offer loans to those who are living in Australia on a visa. They would require you to be a permanent resident or citizen to approve the loan.
A lot of little things
It might not be one single thing that makes the bank say no. It could be the overall picture of a high LVR, low deposit and poor management of expenses which all come together to cause the declined application.
You deserve to work with a broker
A lot of these factors can be easily overcome by speaking with a broker. We can discuss:
- your current situation including income and expenses,
- employment, the types of property you are looking at,
- review your credit file upfront and
- run through your future plans.
Once we understand your situation and plans, we can explain what lenders are available to you, how much they are prepared to lend to you. If you are looking at a special type of property who is most likely to approve a loan.
Working with a broker helps you overcome some of the reasons a bank might say no to you.