Things That Could Lead to a Declined Loan Application (and How to Avoid Them)

Dec 3, 2018 | Loan Application

Whether you’re looking for an investment property, purchasing a new home, or taking your first step onto the property ladder, you’re probably going to need a home loan. Buying a property is one of the most expensive purchases for almost all Aussies, and most of us can’t afford to buy these properties outright.

So why is getting the right loan so important? Turns out, not all home loans are created equal. The mortgage that’s right for a young couple is not necessarily the same one that works for a sage investor, and it’s imperative to ensure that your loan works for you and your goals.

Choosing the wrong home loan could see you facing:

  • High initial transaction fees that you were not expecting
  • High interest rates
  • Difficulty meeting repayments
  • Inflexible terms and conditions
  • Accepting a low offer on a house simply to free up capital
  • Financial penalties

Therefore, it’s always wiser to do a bit of research and consult with experts before you sign on the dotted line. If you’re careless or don’t take expert advice you might end up committing the following, which could ultimately lead to a poor loan decision.

Limiting Your Options

While it’s tempting to simply pop down to the nearest bank for mortgage advice, this is generally not in your best interests. Why? Because the bank is only interested in promoting their own loan products, and they won’t inform you about other options out there. Limiting your search leaves you susceptible to higher repayments and inflexible terms.

Top tip: Speak to loan brokers like us or make use of our online mortgage calculators to see what you can afford. This will help you understand your financial situation and make better loan decisions.

Focusing Only on Interest Rates

Low-interest-rate loans can seem appealing at first glance. However, the cheapest mortgage upfront often doesn’t have the terms you need to make the loan work for you, especially in the long run. For example, if you’re a property investor looking to sell the property early, you could be subject to financial penalties—a high price to pay for what looks like a cheap mortgage.

Top tip: Look carefully at a loan’s features and terms. Check if all its conditions and even the fine print works with your financial capacity and goals before committing to the contract.

Prolonging the Life of the Loan

Whether you’re a young family purchasing your first home or entering the property investment market for the first time, it’s often tempting to reduce your monthly repayments by taking the loan out over a longer period, for example, 40 years instead of just 30. However, you may end up paying far more towards the loan in the long run, which may affect your financial future.

Top tip: Consider taking a mortgage out over a shorter period especially if your finances can handle it and get financial advice on how to refinance if necessary. At Clever Finance Solutions, we follow up with you over the life of your loan to make sure it is still of benefit to you.

Ignoring Your Full Financial Situation

Securing the right mortgage is also about knowing if a loan really fits within your means. You must ensure that you can cope with the loan repayments based on your current and projected income and expenditure. This is especially important in states such as NSW, which has the highest average home loan rate in Australia at $456,100.

Top tip: Do a full calculation of your current and projected income and see if you can accommodate the repayments. Remember to also include an “allowance” that will act as a buffer if your circumstances change or your expenses increase.

Having Insufficient Deposit

It’s always a good idea to have a sizable deposit to put down on a property. This shows home loan providers that you are less of a risk, therefore more attractive to them as lenders. Ultimately, lower-risk borrowers can secure better loan terms than higher-risk ones.

Top tip: The minimum for a house deposit is 10%. Save as much as you can before committing to a loan so you will be seen favourably by lenders. It better have a 20% or more deposit of the projected purchase price.

Blindly Going for ‘Honeymoon Loans’

Honeymoon loans are designed with first-time buyers in mind—a very generous introductory rate and enticing advertising. However, you can expect interest rates to rise sharply after the introductory period ends and you may be paying more than you can actually afford.

Top tip: Listen to expert warnings, particularly in states such as NSW and Victoria, where banks are making the most of concessions. Consider all your options.

Looking for a home loan but unsure how to find the best deal for you? Here at Clever Finance Solutions, our financial experts are experienced in all things lending, and they can help you secure the right loan that best fits your personal or investment goals and needs. Contact us today to see how we can help you plan for the future and make the right financial decisions.

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