Due to the banking royal commission, lenders are cracking down on home loan applications.
Applications that would have been approved in a just few days last year are now being put under the microscope for much longer periods.
To help you in your quest to secure an approval, here are five common reasons a lender may reject your loan application.
1. No proof of genuine savings
Lenders use the term ‘genuine savings’ to describe funds you’ve saved over a period of time.
Basically, if you can’t prove to them that you can knuckle down and save for a home loan, they’re going to baulk when it comes to believing that you can pay one off.
Here are seven ways to prove ‘genuine savings’.
– Regular deposits into a savings account over 6 months.
– Term deposit savings accounts held for at least 3 months.
– Shares or managed funds held for at least 3 months.
– Rental history for the past 6 months.
– Salary sacrificing through the First Home Super Saver scheme.
– Additional repayments into a car loan or personal loan.
– Deposit paid to a real estate agent, builder or developer that was originally in your savings account prior to being paid (ie. not borrowed from somewhere else).
2. You spend like a drunken sailor
Lenders not only want to see you save money. They also want you to demonstrate that you can exercise discipline when it comes to your spending habits.
Therefore lenders will trawl through your spending accounts hunting for any big-ticket items that are out of the ordinary.
This might include a $400 ATM withdrawal at a casino, or a $100 purchase at a baby store if your application says you don’t have children.
3. Your credit history ain’t so hot
Since Comprehensive Credit Reporting was introduced in July, lenders have been sharing a lot more of your credit history.
You can get a free credit report once a year from one of three national credit reporting bodies, which are listed on this government website.
If you find errors in your report, you can get them corrected. You can also take steps to improve a ‘poor’ rating by clocking up a period of consistency and reliability.
4. You don’t have a big enough deposit
Lenders like to see that you’ve saved a deposit of at least 10% to 20% before applying for a home loan.
But all too often people forget to factor in additional funds for other expenses such as stamp duty, lender’s mortgage insurance and removalist costs.
That means, for example, if you have saved $70,000 for a $700,000 loan, you might want to keep saving for a little while longer before you apply for a loan to factor in those other expenses.
5. Your employment situation
Even if you tick all of the boxes above, lenders may also reject your loan application if you haven’t been in your job long enough. And if you’re unemployed, they can’t approve it full stop.
Those who are self-employed are also running into headwinds. Lenders are becoming increasingly hesitant to approve loans unless a steady and reliable income stream can be proven. That said, there are lenders who are more flexible when it comes to self-employed workers, and we can help guide you towards them.
How we can help
We help people who are seeking a home loan overcome all of the above hurdles on a daily basis.
So if you or someone you know has recently had a home loan rejected, or you simply want to nail it the first time, get in touch.
We’d love to help you navigate the tighter lending standards to make your dream of home ownership a reality.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.