Doing your homework before applying for a home loan can reap rich rewards when you approach the bank or financial institution. This is because you can safeguard your home loan application from being rejected. Banks reject home loan applications for numerous reasons.
So, how do you find out which ones are the most important?
Here to assist you, are top ten reasons why banks end up rejecting your home loan applications and how you can get accepted when you try again.
#1 Lack of Funds
This is the first reason for a home loan rejection, especially if you are attempting to borrow more than 80% of the property value. Home loan applications need to demonstrate that debt can be comfortably serviced, if the property valuation depreciates down the road. A record of your actual savings can ensure you are able to service the debt you are taking on. The loan should not be beyond your means.
#2 Inadequate Deposits
A never-ending problem for home loan applicants is if they are saving to buy a loan and changing market conditions only demands that you need a bigger deposit. Lenders do not encourage loan takers to borrow more than 80% of the value of the property, so you need to consider the specific criteria. Check your criteria before you place the application. If you have some equity in other properties, your application is likely to be successful.
#3 Poor Credit History
Not paying bills early on, can bite back in later times. Unpaid bills will show up on credit history so you need to make sure you get a copy of the credit file and check how it looks on the file. Hiding a bad debt cannot work. It is likely to get discovered and when it does, the lender will knock you back. You can check your credit score on Equifax (formerly known as Veda) website and work on improving your credit score.
#4 The Mortgage Insurer’s View
The lender’s criteria may have been met, but if you borrow at the rate of more than 80% of the property value, the mortgage insurer might be tough to handle. Insurance may be needed when borrowing at close to capacity levels. Lenders will also check for employment continuity and see whether you are an unacceptable risk when it comes to loan applications.
#5 Age or Employment Factors
As per the National Consumer Credit Protection Act 2009, lenders cannot approve the application unless a source of income is provided. While home loans are only given to those 18 years old and above, being younger than 23 can seriously impact your chance of getting a home loan approved.
This might be because you lack or have limited credit history up to this point. But this is not an all pervading factor because not all lenders consider credit score. If you are over 45, the home loan company may ask for your exit strategy when it comes to working off the mortgage.
Being in a job for less than 12 months or being self-employed for less than 2-3 years can act as a deterrent for your home loan application.
#6 You Are Purchasing a Unique Property
Unique properties can be amazing places to live in. But they score low on marketability and buyers who would be interested in purchasing the property if the bank needs to sell it are slim to none. This increases the chances of home loan applications to be rejected because there is no value for the property in case you default on your mortgage. Much like unique properties, banks do not finance properties located in certain areas or environments. This includes inner city apartments, homes that have limited access or are prone to bushfire or flooding.
#7 Lack of Savings
If you have bad spending habits, you are likely to attract a rejection on your home loan application. Why is this so? Your bank will look into the transaction history and consider whether you can afford the mortgage repayments.
#8 Apply With Plenty of Lenders
This may ruin your chances of getting a home loan. Too many enquiries on your credit file can make it difficult to get a home loan when one or two enquiries may have sufficed. However, there are specialist lending units that may consider your application.
#9 A High-Risk Proposition
Borrowing up to 95% of the property value is common. But it is seen as a high risk by leading banks. Get your loan approved if you use an expert mortgage broker who knows how to present the case to the lending unit. But in most cases, risk will prove a deterrent for the lending institution or agency.
#10 Too Many Loans
Applying to too many lending institutions for loans and opting for loans for dubious purchases is likely to attract suspicion and reduce the chances of getting access to a secure financing option. The problem with applying for too many loans is that it reduces your chances of paying these back. After all, you only have limited capital which is why you are borrowing in the first place. This is likely to deter the lender and prevent him/her from approving your home loan application.
So, there you have it. These are the factors that influence how the process of home loan applications may turn out for you. Opt to safeguard yourself from the risk areas to avoid getting a red signal. Getting a home loan approved requires successful presentation on multiple counts. In a world where image and reputation count, loans can be an important barometer of your financial success.
If you are looking for a home loan, Credit Hub Australia’s home loan experts will help you find a suitable one that help you cover all the construction and renovation costs without digging up a hole in your pocket.