June 15, 2017
There’s so much excitement involved in applying for a home loan, especially if you are a first-time home buyer. For most mortgage applicants, there is a degree of fear as well – what if the bank rejects my home loan application?
In the case of rejection, not only will lose the financing required to purchase a property but you’ll have to find another lender who will accept your application. This can be more difficult after being rejected by one bank. Also, the feeling of being turned down can be seriously discouraging.
Here are the top three reasons why your home loan application could be declined. Knowing why some Australians get rejected can help you better prepare yourself, and your finances, before approaching a potential lender.
Patrick Nolan, Head of Home Loans at ME Bank, explains that banks will look for proof that making mortgage repayments won’t be a financial challenge for the borrower.
How much of your income are you using to maintain your lifestyle per week? We look at those expenses and marry that up to your income. Then, in addition to that, we look at how much you can afford to service that loan and those repayments.
This means, even if you have substantial savings and investments, this won’t necessarily convince a lender you’re capable of meeting your debt requirements over a 20 or 30-year period. They want to see a combination of high income, a stable job, good credit, and a responsible savings and debt management history. If you don’t have proof of a reliable and consistent income, it may be helpful to apply for a loan with a guarantor to make a bank feel more comfortable with you as a potential borrower.
With the high prices of many homes in Australia right now, meeting a high deposit requirement may be difficult. Still, lenders are no less comfortable today than they ever were with lending more than 80% of a property’s value.
Look over the lender’s criteria before applying. Some are more flexible when it comes to the deposit. Keep in mind that you’ll likely have to pay for lender’s mortgage insurance as well if you borrow more than 80%, no matter which bank or non-bank lender you choose. This can become another hurdle; depending on how well you meet the bank’s mortgage lending insurer’s requirements, you can be rejected by them. This means the bank will deny your application in the end anyway.
You may have excellent credit, a high income from a job you’ve held for years, and even a strong asset-to-liability ratio. However, banks will still reject a home loan application based on the actual location as well as the condition of the property.
A lender needs to ensure an investment is worthwhile. If, for some reason, you do default on your mortgage, they are left to recoup their losses by selling the property. If a home is located in an area that most buyers aren’t interested in or if it’s located next to landmarks with a habit of bringing prices down, such as high voltage power lines or a busy highway, you may be more likely to have your mortgage application denied. From the bank’s perspective, the potential asset they would receive in the event of a default is not worth the risk.
You really only have a limited amount of control over whether you will be approved for your home loan or not. However, by ensuring you are a strong candidate in terms of financial history and income power, and examining the lender’s criteria before you apply to make sure you’re a good fit for them, you stand a better chance of approval.
Written by Refinancing.com.au
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