What happens if my home loan application is rejected?

In Australia, lenders have different lending criteria to follow before approving mortgage applications.
Dawn Teh
Written by
Dawn Teh
Imogen Baxter
Reviewed by
Imogen Baxter
Last updated
May 17, 2024
0 minute read
Table of contents
Couple looks at laptop sitting on the couch reviewing their loan application

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 Loan can help you become a homeowner sooner.

Here's how OwnHome's Deposit Boost Loan works:

  • Get a deposit loan (up to 20% of the property's value) instantly for only 2.2% upfront. Depending on the deposit you bring, this Low Deposit Premium can fall to 1.1%.
  • 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!
Can you afford mortgage repayments but not the deposit? Learn more about a deposit boost loan.
Check your eligibility
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What is the best home loan option?

No one home loan option will suit every person.

The main notes of importance are that you do your research, read the product disclosure statement (PDS) thoroughly, and consult with a financial advisor or mortgage broker if required.

If you are a first-time home buyer, a single parent, or buying in a regional area, it may be worth looking into government schemes to allow easier access to the property.

Are there any options for home loans with no deposit?

If you have no deposit, you may be more limited in home loan options.

Guarantor loans allow a loved one or family member to use the equity in their property for you to borrow against. Guarantor loans allow you to borrow a greater amount of money — up to 110% of the value of the property. This can be helpful when it comes to upfront costs like stamp duty.

Another option for those with generous friends and family can come in the form of a gifted deposit. This can either stand alone as your house deposit or can top up any deposit that you have already.

If you do receive a gifted deposit, be prepared to demonstrate genuine savings and a strong credit history as a way of proving you will be able to make your monthly repayments. You may also need to prove that the money was gifted in the application process (to prevent people from using money from personal loans or credit cards are their deposits)!

How does my deposit impact my home loan amount?

The bigger your deposit is, the less money you will need to borrow.

It stands to follow that the more money you are able to use as a deposit, the lower your loan amount will be. Conversely, the smaller your deposit, the larger your loan will be.

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

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