Having your home loan application declined can be a massive kick in the guts, unfortunately it is a reality that can happen. You can prepare yourself to put forward a strong application, by taking note of these 5 common reasons for decline.
Poor Credit History
This could refer to a couple of late credit card payments, maybe some missed car loan repayments, an old phone bill you forgot to pay, or a court judgement lodged against you. Whether it is going to cause your application to be declined depends entirely on the lender’s policy. Always be upfront with your Broker, so they have the chance to present your application the right way and to the right lender.
This is your ability to repay the loan based on your stated income and expenses. Each lender is different, and just because you had a $500,000 loan with ABC Bank doesn’t mean you can get the same with XYZ Bank. Different types of income can be calculated differently, such as Overtime, Allowances, Commissions or Bonuses. Your broker can help you find the lender that has an Income Policy most favourable to you.
It’s common knowledge that you need to kick in some savings when buying a home, most people know on average it’s a minimum of 5%. But do you know what constitutes ‘Genuine Savings’ with your lender? Some lenders demand evidence of 5% saved gradually over 3 months, some lenders want to see 5% savings held in one account for 3 months. Some will discredit your ‘Genuine Savings’ if you took even a small amount out of the savings in the last 3 months, some will allow you to prove ‘Genuine Savings’ with a rental ledger. If you don’t have the knowledge before submitting the application, this could lead to a decline.
This is largely based on Point 1 of this list, Poor Credit History. However, a lot of people are unaware of the other factors that weigh into this score, including employment history, residential history and credit enquiries. If you have regularly changed jobs, regularly moved house and have a lot of credit enquiries listed on your Credit Report this can lower your score. Read more about Credit Score here.
You might be buying your dream home, but the lender might have different ideas about the suitability of the property. Lenders have Security Policies in place, which govern what type of properties they will accept, and at what LVR. Issues may include; postcode restrictions, minimum apartment sizes, maximum land sizes, proximity to power lines, heritage listing, or property requiring essential repairs.
Any one of the above issues can result in your application being declined, but it doesn’t mean that you should give up. Your Broker will work with you to find a lender that suits your situation, or help you plan to have a stronger application in the future.
For more information call Ellen on 0423688756 or get in touch here.