It can be disheartening to follow the entire home loan application process — only to get rejected.
However, don't despair. It's not the end of owning your dream home.
You can take this opportunity to review your financial situation, make any necessary adjustments, and improve your chances of approval!
Keep reading to discover the steps you need to take, so you can finally be on your way to homeownership!
What are common reasons that a home loan application is rejected?
If your home loan application got rejected, don't take it personally.
In Australia, lenders have different lending criteria to follow before approving mortgage applications. They're required to do this to protect their business interests while also maintaining their credit licence.
Here are some of the most common reasons why yours might have made it this round in the approval process:
1. Your deposit is too small
Lenders typically require a deposit of at least 20% of the purchase price to minimise the risk involved with lending. If your deposit falls short of this requirement, your application may be rejected.
2. Your lender is unsure if you can pay off your loan
When you apply for a home loan, lenders aren't just looking to see if you have enough of a deposit saved up. They want to be reassured that you can make your mortgage repayments.
To do this, they'll assess your entire current financial position, including your income and genuine savings in your bank statements. This is especially important for those who are self-employed, as your income may be deemed to be less stable.
Lenders will also examine your spending habits to ensure you're not overextending yourself financially.
Your credit history, credit report, and debt-to-income ratio will be scrutinised, with any late payments or bad credit being considered. This includes any existing debts you may have, such as car loans, personal loans, and credit card debt.
3. The type of property you're buying
Credit providers have different policies around the type of properties they'd approve a home loan for. For example, it's not uncommon for lenders to avoid approving mortgages for studio apartments as they're seen as high-risk.
How many times my salary can I borrow for my home loan?
What should you do if your loan application is rejected?
It's tough getting your home loan application rejected, but that doesn't mean it's the end of your home ownership journey!
There are things you can do to improve your chances of getting approved on your next home loan application.
This includes:
Improving the credit score on your credit file
- Request a copy of your credit report to understand your current situation and work from there.
- Pay bills on time.
- Avoid applying for other loans or credit cards before applying for a home loan again.
Reduce spending
- Watch your spending by creating a financial plan around lifestyle expenses.
- Cut down on unessential expenses.
Boost income and savings
- Have a solid employment history and stable sources of income. Avoid job hopping at this time.
- Save up a larger deposit.
Don't forget that you can also ask your lender how to change your financial situation to meet their eligibility criteria for home loan approval.
Can I get a home loan if I am self-employed?
Get a larger home deposit without saving for years
Got rejected because your deposit was too small? You're not alone.
The average Australian first-home buyer takes up to ten years to save up a 20% home deposit to purchase a home in our capital cities.
Unfortunately, the soaring cost of living and low-interest rates on savings accounts isn't helping either.
Fortunately, an OwnHome Deposit Boost can help you become a homeowner sooner.
Here's how OwnHome's Deposit Boost works:
- Get a deposit loan (up to 20% of the property's value) instantly for only 2% upfront.
- Pair it with an 80% loan-to-value ratio (LVR) mortgage from another lender. No paying Lenders Mortgage Insurance (LMI) and no need for a guarantor.
- Start looking for your new home with our dedicated OwnHome Buyer’s Agents!
