It’s easy to feel discouraged when a lender declines your home loan application, but it isn’t necessarily the end of your home buying journey. Whether it’s because of low deposit, too much debt, a poor credit history, inconsistent income, or simply lender policy and lending appetite, it helps to understand why it happened and, more importantly, what your options are. Here’s what it means for you if a lender turns down your mortgage application, and what you can do about it.

Why lenders decline applications

While every lender has its own set of lending criteria used to assess mortgage applications, in general, these are the reasons that may have led to your mortgage application being declined: 

Not enough deposit.

Bank lenders can only lend up to a certain amount to borrowers with low deposits and may already have reached their limit.

• Check if you’re eligible for any Government first home buyer support.
• Get help from family or friends with a cash gift or an interest-free loan, someone to act as guarantor or be a joint borrower.
• Consider a non-bank lender that is not subject to LVR restrictions, and may offer more flexibility around low deposit lending.
• Check out this blog for more on saving a deposit for a first home. 

Poor credit history.

Lenders use credit history to assess your reliability as a borrower. Missed or late repayments could signal a higher risk to the lender.

• Work hard to improve your credit score by consistently paying back your debt on time and in full.
• Avoid applying for high interest credit that can negatively affect your credit score.
• Don’t apply too often or submit too many applications at the same time,
• Don’t apply for credit you really can’t afford to pay back.
• Avoid certain types of debt – such as pay day loans or buy now pay later – which can negatively affect your credit score.
• Consider consolidating your debt into a debt consolidation loan with better terms and interest rates to help improve your credit profile. 

Too much debt in relation to income.

If your bank transactions show too much spending – or your overspend more than you earn each month - it could impact how much you can borrow. Your lender might reduce your borrowing capacity or even decline your home loan application if they feel you can’t afford your mortgage.

• Cut back on spending and aim to save more.
• Set up a budget and stick to it.
• Avoid going into overdraft and reduce expenditure on credit cards.

Inconsistent income.

If you change jobs too often or you’re self-employed, your income may be inconsistent and a lender may be reluctant to lend to you.

• To show a regular income, ensure you have 3 months’ of payslips if you’re employed, or 2 years of financial statements if you’re self-employed.

Different lending rules and appetite.

Each lender has its own set of rules for lending. Some may have higher test rates or be less likely to lend at different times in the market cycle.

• Get professional advice from a mortgage adviser who understands the application criteria for different lenders and can negotiate on your behalf.
• Find out how to prepare for mortgage pre-approval so you have some certainty around how much a lender will loan you.

It pays to get the right advice

Depending on why your mortgage application was declined, there may be other options. Work with a Mortgage Express branded mortgage adviser who will help you put together a solid home loan application, and match you up with the right lender so you’re assured of your best possible chance of success.

Contact Mortgage Express today to connect with a mortgage adviser in your area.