Sick of getting knocked back by the man with the money?
Here are 11 reasons why your home loan isn’t getting approved.
1. You work for yourself.
If you have been self employed for less than 2 years and have less than two years of tax returns your going to have a tough time getting a loan across the line.
I’ve seen people start their own businesses and had accountants recommend they right off all of their profit in the first few years to save on tax.
This is all well and good, but it will make it extremely difficult to get a loan.
Tip: Working for yourself can be difficult to get around, as you are seen as unstable in the banks eyes. If you have a great accountant they may be able to write you a letter after your first years tax return to support your case with the banks.
2. You just started a new job or have an unstable work history.
If you’ve just started a new job or have an unstable work history you’re perceived to be a higher risk. The banks want to see a stable source of income. Some lenders even go as far as wanting a borrower to hold the same job for a minimum of two years prior to applying for a mortgage.
Tip: You can get around this issue fairly easily by finding a quality mortgage broker and asking for a letter from your employer guaranteeing your employment for the next 12 months.
3. You’ve filled for bankruptcy or foreclosure.
Unfortunately these items will stay on your credit history for at least five years. There is really no option here but to wait it out.
Tips: Mortgage Choice recommend you keep your finances in order while recovering from a bankruptcy or foreclosure to boost your chances of being approved for a mortgage before the item is wiped from your credit history.
4. You’re trying to buy a property that you can’t afford
While you Champaign tastes, it may be a while before you can move past a beer budget. Unless you were left with money, chances are your going to have to make it through discipline and hard work.
Unfortunately too many homebuyers are emotional and will justify an expensive purchase for lifestyle reasons.
Tip: Make sure you consider each purchase as part of a longer-term play. The further you get down the property investment track the more you realize just how important each purchase becomes.
Be honest with yourself about what you really want and what you can afford.
5. You’re didn’t shop around for a loan
The most common reason loans fall through is because we rely on a single lender. Just because you’ve been knocked back by one lender doesn’t mean you’ll be knocked back by ever lender.
Tip: Shop around or find a great mortgage broker to do the shopping around for you.
Only last week I was knocked back at the lenders mortgage insurance stage of my loan by one of the major QLD banks. This was after I had been told for 5 weeks that it would be no problem. I immediately rang my mortgage broker and within 7 days we had a pre-approval on the loan and have just gone to contract.
Why didn’t I go straight to my broker?
Because I’m flipping the property for a short term profit. Mortgage brokers don’t like doing short term deals as it ruins their relationships with lenders and they miss out on their commission.
6. Your taking your bank managers word for gospel.
This is a massive trap for inexperienced investors and first time homebuyers.
Bank managers are paid by one company to sell one product to everybody.
The problem is everybody is different and if you are anything outside of the box you are placed in the too hard basket.
If your bank manager really had your best interests at heart they would be shopping the market for the best mortgage, interest rate and terms to suit your situation.
7. You don’t have a big enough deposit.
The property investment game is fairly straightforward – The one with the biggest deposit wins.
Having a 20% deposit dramatically increases your chances of guaranteeing a loan. It also increases the number of lenders you will have access to and the terms and interest rates you can negotiate.
Tip: There are hundreds of lenders in Australia who will happily lend money to investors with out a 20% deposit. It may be worth considering using the leverage of mortgage insurance to get into your next deal sooner. Mortgage insurance allows you to borrow up to 95% of the value of the property with some Australia lenders.
8. You have a history of late payments.
Credit history has a horrible way of sneaking up on you when you least expect it. Even if you always end up paying your debts in full these nasty suckers can make a bank think twice about approving your loan application.
- Resolve to never make a late payment again in your life.
- Set up a direct debit system, to ensure payments are made on time.
- In extreme cases you may need to open a credit card account and consistently make payments on time.
9. You don’t use revolving credit.
Revolving credit like credit cards helps you build up your score and establish positive credit history. Using and paying off debt is the only way to establish credit history, so it’s important for you to have some experience with borrowing before you apply for a mortgage.
10. You’re not making enough money or your income is too low – to purchase the property you’ve applied for.
While this can be a slap in the face, it can also be a great motivator to get your shit together. Alternatively you may need to re-set your expectations on what type of property and where you’re looking to buy.
A young executive in Sydney is earning $130,000 a year and living with his finance, who is also earning $70,000 a year. They have no dependants, but they pay $700 a week for a 3-bedroom apartment in Bondi. They go to their bank manager and are rejected for a loan on their first property, which is $850,000 house in the Sutherland Shire.
Its unfair to say they should earn more money, but they are living in an expensive city and may need to look at a cheaper option to enter the market.
Tip: An alternative option to simply ‘making more money’ is to purchase a property with another person. You could find someone to co-sign or share a home with a friend or family member. While I personally am completely against purchasing long term property with anyone out side of your spouse I have had to do it on three occasions to get into the market sooner and make short term chunks of money.
11. The economies experiencing a downturn and its harder to get credit.
While many people use the economy as a cop-out the economic environment does have a significant impact on your ability to access finance from certain borrowers.
You can generally tell when the economy is tight because property market values are flat or falling. The reverse is also true – property prices generally begin rising when borrowers can easily access finance.
Next time you’re getting rejected on a new loan, unfortunately it will happen again, keep in mind these 11 reasons why your home loan isn’t getting approved.
Always remember lending’s not personal.
Most of these temporary set backs can be easily over come with a great mortgage broker or shopping the market.
If you need help getting a loan across the line or you’re looking for a second opinion I would be happy to introduce you to my personal Mortgage Broker Aaron. You can get in touch with Aaron here.
The information provided in this blog is of a general nature only and in no way constitutes legal or professional advice, or specific advice in relation to any finance strategies. In all cases we recommend you receive professional financial advice for your own personal circumstances.