Last Updated: 20th September, 2022
When your home loan application is rejected, it may seem like you’re never going to get the keys to your dream home. However, instead of taking a step back, this is your opportunity to find out why your application was denied. You can work on the issues so that your application is accepted when you apply again.
What Happens If My Mortgage Application Gets Rejected?
Every time you apply for a home loan, you create a hard inquiry on your credit file. So when your loan application is denied, it remains as an inquiry on your credit file. While one denied home loan application would not drastically lower your credit score, it’s a different story when you apply with one lender after the other. The more inquiries on your credit file, the lower your credit score. Also, a large number of inquiries in a short time suggests to potential lenders that you’re a risky borrower. This further decreases your chances of approval. Therefore, it’s important to apply only with a lender that is favourable to your circumstances and is likely to approve your application. Since choosing the right bank for a home loan is difficult, take the help of a mortgage broker. At Home Loan Experts, we tailor your application so your home loan is approved. Call us on 1300 889 743 or enquire online.What You Should Not Do After Your Application Is Denied
- Reapply again with more lenders. Every application is recorded on your credit file. Applying with several lenders is a red flag that you’re not financially stable.
- Lie on your mortgage application as it would only make matters worse. Lenders will thoroughly assess your application to make sure every statement checks out.
- Apply with dodgy lenders and get finance, as these lenders are not monitored by regulatory bodies and charge exorbitant interest rates.
What Are The Common Reasons A Mortgage Application Is Denied?
1. Small Deposit
In most cases, a deposit of at least 5% to 10% of the property value is required to get approved for a home loan. Each lender has its limits on the maximum amount you can borrow. If your deposit is less than 5%, then your application could be rejected.2. Bad Credit History And Defaults
The amount you can borrow depends on the age, the total number and total dollar value of the defaults. If you have a thin credit history or your credit file includes missed payments and defaults, it’s not a good signal to lenders.3. Employment Situation
If you are unemployed, there are no lenders who can help. In fact, things get tricky if you’ve been in your job for less than six months or you’ve been self-employed for less than two years.4. Age
Most lenders do not lend to borrowers under 18 years of age. At the other end of the spectrum, being too old is not favoured unless the borrower has a solid exit strategy.5. Property Issues
Banks are wary of financing properties located in particular locations or environments. These include properties in inner-city apartments, off-the-plan, properties with transmission lines over them or areas that are affected by bushfires and floods. Also, if the property is overpriced, then the lender could reject your application.6. Bad Spending Habits
The bank will look at your transaction history and will consider whether you can afford the mortgage repayments. Even inquiries on buy-now, pay-later services are scrutinised.7. Applying With Multiple Lenders
Too many inquiries on your credit file can make it tough to get a home loan, especially if you’ve had two or more inquiries in the last six months.8. No Genuine Savings
Genuine savings show that you saved a certain amount over time towards a deposit for your home. Lump-sum deposits like inheritance or gifted deposits, and irregular bonuses, are not considered genuine savings, as the lender cannot gauge your savings habits from them.9. Inadequate Income
Lenders need to know that you can afford the mortgage repayments without any financial hardships. They will do a serviceability test to find out your debt-to-income (DTI) ratio. This helps them ensure you can pay off your existing debts on top of a mortgage and have money left over. If there would be little to no money left over, then your ability to pay back the loan is questioned.10. Insufficient Documents
Lenders will request documents that show information about your employment, financial situation and contact details. If any one of these documents is missing or has the wrong information, the application is rejected.How Long Should You Wait To Apply For A Home Loan After Being Denied?
There is no definite timeframe as to how long you should wait to reapply for a home loan. You have to know the reasons why your application was rejected and take the required time to fix the issues. To ensure the highest chance of approval, it’s best to wait for at least a year as lenders will look at applications made in the last 3 to 6 months.Can A Home Loan Be Declined After Pre-approval?
Yes, your application can be declined even after pre-approval in the following situations:- You recently changed your job, as lenders will question your job security.
- You took out more credit after pre-approval, which increases your debt and DTI ratio.
- There were some missed and late payments on your credit file after pre-approval.
- There are mistakes and inconsistencies with your application.
- The lender found out information during pre-approval that was not previously disclosed.
- The property you want to buy does not meet the lending criteria.
- The lender’s requirements changed during your pre-approval period, and you don’t meet the new requirements.
