5 Common Reasons Your Home Loan May be Rejected Dec 17, 2019 | Home Loan If your home loan application has been rejected, you may feel like there are no other options. Fortunately, there are hundreds of loan products on the market and there is most likely a lender that can offer a product to suit your circumstances. Whether you have applied and been rejected, or are in the process of applying for a home loan, Your Finance Adviser can help to ensure you have the best chance of approval. Home loan products in Australia are regulated under the NCCT Act, which is designed to protect the industry and ensure that loans are not given to those who can’t afford it. Understanding the requirements and submitting the correct documentation is the key to ensuring your loan is approved. In this article we will cover 5 common reasons that home loans are rejected. Low savings. A healthy savings account demonstrates that you are able to control your finances and put regular money away for the future. As well as the deposit amount, lenders will look at your savings history over the past 3 months to determine if savings contributions are regular, as opposed to irregular lump sums. In most cases, you must be able to demonstrate that you have held the loan deposit amount in your account for a minimum of 3 months. Inaccurate information in the loan application One of the key traits lenders look for is the trustworthiness of the applicant. Remember that most of the information you provide can and will be verified for the lender, so there is no benefit in inflating income figures. Similarly, your credit history will be verified through a credit check, so be sure to disclose any loans or credit facilities, even if the current balance is $0. Lack of preparation Many applicants are turned down for a loan simply because they are unprepared. It’s not as simple as walking into a bank and filling out some paperwork – there is a long list of criteria that must be completed in order to have a loan approved. Before submitting a loan application, make sure that you understand your own financial situation and have paperwork in order, including proof of income, details of any loan and savings accounts and copies of any documents to prove ownership of your assets. Bad credit A credit rating is a measure of an individual’s overall creditworthiness. Predictably, lenders use your credit rating as a major indicator of whether you will be able to repay a loan on time. To maintain a good credit score, you must make debt and utility repayments on time, keep borrowing well below the limits and minimise your number of loan applications. In most cases, an applicant with a low credit score will still have a few options for home loans. If you are aware that you may have a low credit score, speak with a specialist at Your Finance Adviser to determine which type of loan may best suit your circumstances. Lack of deposit or collateral Lenders are limited by Australian regulations that only allow them to lend up to 80% of the property purchase price (this can be different for non-residential properties, small apartments or those outside of urban areas). If you do not have the required 20% deposit savings, your loan may be subject to Lenders’ Mortgage Insurance (LMI), which is a one-time payment that protects the bank in case you default on the loan. If you are unable to afford this payment, the loan is likely to be declined. Similarly, if your collateral is already tied up and securing other loans, you may not have the equity available to take out a new loan. Speak with Your Finance Adviser for help in calculating whether you are able to provide adequate security for your new loan or look into alternative options.
