Last Updated: 4th January, 2023

11 Reasons Your Home Loan May Be Declined

Published by Otto Dargan on February 26, 2015

Has your home loan application ever been knocked back by a bank?

Many lenders in Australia are quite strict when it comes to allowing people to borrow money for a home and chances are one of these 11 reasons will be the basis for why your application is knocked back.

Keep in mind, not all lenders are the same.

Each of them have their own lending policies and, with the expertise of a qualified mortgage broker, they can find a lender that will accept your case, rather than having to shop you around.

For now though, step inside the (creepy) mind of the bank.

Even if they don’t decline your loan because of these reasons, they will almost always be keeping a keen eye on the following:

1. You have a small deposit

In most cases, you’ll usually need to have saved 5% to 10% of the property value as a deposit in order to get a loan. However, if you have a guarantor who can secure your mortgage then you can borrow 100% of the property plus the costs of completing the purchase and avoid Lenders Mortgage Insurance, a one of premium payable when borrowing more than 80% of the property value.

2. You have a bad credit history

Although we can’t help you qualify for a mortgage if you’re currently bankrupt, we can help to borrow up to 90% of the purchase price of a property if you’re discharged bankrupt.

Similarly, if you’ve paid any outstanding defaults on your credit file, we may be able to get you qualified for a loan.

The amount you can borrow will depend on the age and the total number and dollar value of the defaults, including whether they’ve been paid or not.

Please speak to our specialist in bad credit home loans by calling 1300 889 743 or by completing our free assessment form. They can assess your situation in full and recommend any home finance options available to you.

3. You’re unemployed

Under the National Consumer Credit Protection Act 2009, lenders cannot approve your application unless you can prove the source of your income. No way around this one, unfortunately.

4. You’re too young

You simply can’t qualify for a home loan if you’re under 18, but did you know that being aged 18 to 23 can actually bring down your credit score?

The reason is that at such a young age you’re either likely to have a limited credit history or no history at all to demonstrate that you’re a good borrower.

Luckily, this is not usually a major problem in getting a loan because not all lenders credit score.

5. You’re over 45 years of age

Under the Age Discrimination Act, banks can’t discriminate against home loan applicants because of their age.

Despite this, they may ask you for your exit strategy in paying off the mortgage if you’re over 45 years of age. Unless you can do this, your application may be knocked back.

Common strategies include:

  • Downsizing to a smaller home when you reach retirement (not accepted by all lenders).
  • The sale of assets such as an investment property or shares.
  • Lump sum repayments from superannuation.
  • Ongoing income from superannuation.

6. You’ve been in your job for less than 12 months

Most lenders require that you’ve been in your current job for a minimum of 6 to 12 months in order to borrow 80% of the property value.

Other lenders take a more common sense approach.

In fact, one of our lenders will allow you to borrow up to 95% of the value of the property, even if you have just started a new job.

7. You’ve been self-employed for less than 2 years

In most cases, you’ll need to have been self-employed for at least two to three years before the banks will approve your loan.

However, there are some that will consider applicants who have been self-employed for only a year.

8. You want to buy a unique property

Unique properties can be really cool places to live in but, unfortunately, they only appeal to a particular market, usually of the “crazy rich dude” variety.

Banks only care about marketability, that is, are there buyers who will be interested in buying the property if the bank needs to sell it in case you default on your mortgage?

Like unique properties, banks are wary of financing properties located in particular locations or environments.

This includes properties that are inner city apartmentsisland and water access only, have no driveway access and are affected by bushfires or floods.

There are even restrictions on particular postcodes so be wary of making an offer in such locations.

In spite of these factors, a broker may still be able to get your loan approved by going with the right lender.

9. You have bad spending habits

Do you party too hard or spend a little too much on online shopping?

Your bank will look at your transaction history and will consider whether you can afford to make the mortgage repayments.

10. You’ve applied with a lot of lenders

Having too many enquiries on your credit file can make it tough to get a home loan, specifically if you’ve made more than one or two enquiries in the last six months.

Luckily, there are specialist lenders that will consider your case fairly if you have adequate explanations for each enquiry you’ve made over the past two years.

11. You want to borrow 95% of the property value

Although borrowing 95% of the property value is fairly common, it’s still seen as a high risk by most banks.

To get your loan approved, it helps if you have an expert mortgage broker who knows how to present your case to the lender.

With a guarantor to secure your mortgage though, you may be able to borrow up to 100% of the property plus more.

What’s preventing you from qualifying for a home loan?

Our mortgage brokers are credit experts who can quickly identify the roadblocks in your mortgage application and how to go about presenting a case to a lender that best suits your situation.

Call us on 1300 889 743 today or complete our free assessment form to speak to a broker.