Episode 38
9 reasons your loan may have been rejected
Welcome to Finance & Fury. Today we’re talking about 9 reasons you may have your home loan application declined.
We have Jayden Vecchio this episode running through the 9 reasons.
As a result of the recent Royal Commission into banking, the lending criteria has become more strict to slow down the market there has been a limit set on lending.
- Small Deposit
These days you will need 8-10% of the property value as a deposit to get a home loan…BUT, there are situations where you can use a guarantor to help you borrow up to 100% of the property plus additional costs.
Best of all, you avoid paying lenders mortgage insurance which is usually payable if you have less than a 20% deposit.
- Being over 45 years old
Although there are laws (check out the Discrimination Act) to make sure banks don’t discriminate because of your age, these days it is common for the lenders to ask for an exit strategy in paying off your home loan if you are over 45 years old.
This is because a 30 year loan term structure means the loan will end when you’re 75, and the bank wants to know how you’ll be paying the loan at that age. In effect, these restrictions can limit your mortgage options because of your age.
While different banks have different policies, some common exit strategies for anyone aged over 45 years old are:
- Moving to a smaller house and downsizing once you reach retirement age
- Selling other investment properties, or shares.
- Releasing funds from your superannuation to pay down the loan.
- Recurring income received from your superannuation fund.
- Being too young
Don’t worry the young people get grief too from the banks!
You can’t apply for a home loan if you are aged under 18 years old, but did you realise that being aged under 25 can negatively affect your credit score? Being young you may have a very limited (or no credit history) at all to show you are a good borrower. Defaulting on phone bills could be the reason you get rejected.
- Spending habits
When you apply for a home loan nearly all banks will want to see your last 3 months (Suncorp Bank want to see 4 months) day to day transaction account statements.
If you spend a little too much at Zara, or at Dan Murphy’s on the weekend this could affect your home loan application.
The banks will look into your monthly living expenses to determine if you can afford to make your home loan repayments.
- Under 12 months in a job
Lots of banks will want you to be in your current job for at least 6-12 months to be able to borrow with less than a 20% deposit.
In other words, if you are borrowing more than 80% of the property value (with lenders mortgage insurance) you will get your loan declined…
Unless you work with a mortgage broker that knows which banks will lend to you if you have been in your job for less than 12 months.
We work with some lenders that will lend to you even if you have just started a new job. If you have been in the same industry for a while now and your previous roles weren’t permanent positions, this can be overcome.
- Being self-employed
In a lot of cases, the banks will decline your loan if you have been self-employed for under 2 years.
We are self-employed loan experts and work with several lenders that will consider home loan applications with people who have been self-employed for only 12 months. Same again as before, if you’ve been in the same industry for a number of years, this can help.
There are lots of mortgage brokers (and banks) who are generalists and just find self-employed applications too hard.
We have a team of credit experts and will help find a lender that will work with you.
Being Self-Employed for under 2 years can mean instant home loan decline with some banks and lenders.
- Buying a ‘difficult’ property
It used to be the case that buying a unique property with a helipad caused issues…
Unfortunately, the banks are being even more particular with what type of properties they will lend on.
Some banks have restrictions to lending on units, others will restrict you based on bushfires, or flooding restrictions.
In other cases, some banks will be ok with lending on apartments but have restrictions based on:
- The suburb or postcode where the unit is located, sometimes with restrictions based on high density or inner-city locations.
- How many floors the block of apartments has, sometimes with restrictions when it is higher than 4 stories.
- The total floor area inside the apartment, with restrictions if it is less than 40 square metres.
- If the bank already has too much lending in the building you are wanting to buy in.
Regardless of these limitations, you can still get your loan approved by going with the bank that is happy with that type of property.
Read More: How reliable is your pre-approval?
The Flood Awareness Map lets you know what the history of flooding is at your property.
- Bad Credit History
A bad credit history in the eyes of the banks involves small defaults, bankruptcies, and judgments on your credit file.
Defaults on your credit file as small as $100 can cause the bank to reject, or decline your home loan.
As an example we’ve recently had a first home buyer who had a small phone bill that was sent to their old address, they moved and it was never paid. This first home owner never received the bill, and wasn’t notified of it being overdue because all the mail was going to the wrong address.
As a result, the phone company put a default on their credit file for the amount owing and the first home owner didn’t become aware of this until they tried to apply for finance through their bank and got knocked back! Fortunately, they came to us, and we were able to help navigate around it and find a lender that would let them buy their dream home.
From 1 July 2018 positive credit reporting is mandatory for all of Australia’s big banks, and they need to have at least half of their customers on the platform and by 1 July 2019, they need to show comprehensive credit reporting for all customers.
- Too many loan applications
If it wasn’t enough being too young, too old, or looking for a unique property, the banks also regularly decline home loan applications because you may have had too many credit enquiries in the past 12 months.
In other words, if you have had more than 2 or 3 enquiries in the last 6 months the banks could give you a bad credit score, and reject your home loan.
Fortunately, there are banks and lenders that will consider your application provided there are fair reasons for the credit enquiries.
Our team regularly deals with these non-credit scoring lenders and can help find a deal that works for you.
This concludes the 9 reasons why home loans are getting harder. If you’d like to get in contact with us you can by heading over to the contact page or on Facebook.
If you liked what Jayden had to say, check out Hunter Galloway’s website here.