Top 5 Reasons Your Home Loan Application May Be Rejected

1.      No Demonstrated Savings

Demonstrated savings can be defined in the finance space as the ability to demonstrate to your bank or lender your capacity to make regular and consistent saving out of your income over a period of time. This provides the bank with confidence that you have the ability to make regular payments towards your mortgage. Having demonstrated savings of at least 3-5% of the deposit is a must (even with the first home buyers grant) and 10-20% is ideal.

Tip: if you have been given a gift and wish to use the gift as your deposit, leave it in your bank account for 3 months before applying for a loan. In most cases the lender will then count this as ‘proven savings’.

2.      Credit History

Irrespective of your ability to service the loan and even your deposit amount, a lender may still reject your home loan application if you have previous unpaid bills, continually late with payments or have previously been bankrupt.

Tip: Get a copy of your credit report before applying!

3.      Residential Instability

Lenders look for stability, be it in the means of employment longevity or consistent living arrangements. A history of regular change of residential address may result in your application being declined, however if the continuous change of address is a direct relation to your employment it is important to have this discussion with your lender beforehand.

4.      Employment Instability

Following on from the above point, employment instability can potentially have an adverse effect on your loan application. Lenders generally look for consistent employment of at least 6 months and not a lot of ‘job hopping’ prior to that.

Tip: the lenders usually will understand that career progression can take the form of changing company. If you have recently changed your industry have this discussion with our lender and determine if you meet their employment criteria.

5.      Unsuitable Property

Even once you have a pre-approval in place, your lender may have other specific criteria that the property will need to comply with. For example a property in a big residential development with a large number of properties on the market for sale may pose as high risk and may not comply with their lending criteria. Also the internal square metres of the dwell can also be a factor.

Tip: Most lenders now will allow lending on residential property over 40-50 square metres, be sure to check with your lender on their policy.

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