04 Mar Why Did My Home Loan Get Declined?
Ever wondered why your home loan application was declined by the bank? Here are some reasons to guide you in case you wish to reapply and some advices on how to fix it.
Purchasing a house is likely to be the most significant financial transaction in one’s life. Since home loans tend to have longer terms compared to other types of loan, lenders follow a tight risk profiling and credit lending policies.
In this rigorous process, your home loan application has the possibility of getting declined, bringing disappointment to you. However, there’s no reason to panic and lose hope. You can always familiarise yourself with the lender’s requirements before you apply for home loan. Moreover, you can rectify the situation by finding out the reason for it and go about carefully fixing it.
Reasons for Declined Home Loan Application
- Poor Credit History
Your credit history reflects how you manage your finances thereby giving the banks an idea whether you’re a risky investment or not. It often includes current loans in your name, previous loan applications, and whether bills are paid on time. If there are black marks in your file, such as defaults or bankruptcy, they will count against you when your application is being assessed. Be proactive and request for a copy of your credit file before you apply for a loan to take steps to repair your credit history if needed.
- Frequent job hopping
Though changing jobs for better prospects or other personal reasons is common, frequent change of jobs creates a sense of uncertainty about you in the lender’s mind. Generally, lenders require an applicant to have held the same job for six months or to have moved into a similar area after previously holding a job for at least two years.
- Not being honest about your financial situation
As a mortgage broker, I ask my clients to be completely honest and transparent in regards to their finance in order for me to fully assess their situation. Same case with the banks and lenders. Considering the stricter process now in lending, banks can easily catch any discrepancies in the loan application. Hence, it is better to disclose all liabilities and spending habits to allow for a smoother process.
- Spontaneous spending
As previously published on Nestegg, some banks now require transaction statements, which means borrowers can’t hide with their history of spending. Examples include Afterpay, Zip pay, frequent holidays, high spending on credit cards and even spending on gambling, alcohol and dining are being hauled into question if they are ongoing expenses after their loan has settled or if this constitutes discretionary spending.
Get your spending under control and show the bank you have a track record of saving to demonstrate confidence you can repay a loan. Get rid of credit cards, store cards, you’re not using or reduce limits, it helps to improve borrowing capacity, and clear Zip Pay or Afterpay purchases. Be cautious of your ‘conduct’ on your current loans – if you are showing missed or late payments this could be a deal breaker for some banks.
These are just some of the common reasons why home loan applications are getting declined. This may or may not apply to you but at least it gave you an idea the next time you appeal your case another lender.
For a more sound and professional advice, consult with me today on 0408 081 082.
Credit Representative Number 486927 is authorised under Australian Credit Licence 389328.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.