What should you do if your home loan is denied? First, don’t panic. There are many steps you can take to fix the situation. And we’re here to help.

If you’re one of the many Australians who have been knocked back on your home loan application, don’t worry. There’s no reason to give up! At this stage we simply need to drill down into the reasons for the home loan denial and then determine what steps we need to take to fix them. So what should you do if your home loan is denied?

What Should You Do If Your Home Loan is Denied?

As a first step we need to understand the reason your home loan was denied. In many cases it comes down to the lender’s requirements under responsible lending laws. At the end of the day they are responsible for ensuring that each borrower can meet their payment obligations and aren’t stretching themselves too far. And there are many reasons that could play into that decision. However, for each of these reasons, there are things that you can do to mitigate their impact over time. So, here are the reasons why your loan might be rejected, and what you can do about it.

Reason 1: Repayment Risk

As a first step, lenders need to feel confident that you will be able to comfortably service the loan before approving your application. To get that comfort they’ll look at your income, your savings, your debts and obligations and your spending habits to see whether or not they believe you will be able to make your required repayments. If those numbers don’t add up in a way that the lender likes, they won’t approve the loan.

Tactic for Mitigating Repayment Risk

If your loan has been denied due to repayment risk, the main tactic here is just to take your time, reduce your debt and ramp up your savings. You might also consider a debt consolidation loan, if you have excess debts.

Reason 2: Low Deposit

When you have a low deposit amount (under 20%) – even if you’re planning on purchasing Lender’s Mortgage Insurance – lenders may see you as a high-risk borrower. Having a larger deposit gives lenders more assurance.

Tactic for Mitigating Low Deposit Risk

Consider how you can save more money towards your deposit. Can you give up extra spending and put it towards your deposit? Be sure to check if you’re eligible for any government schemes, such as first home buyer grants as well.

Reason 3: Low Credit Score

Each lender in Australia will assign you a credit score, and if this is low, they will be unlikely to approve your loan application. A low credit score might come from defaulting on repayments or having overdue repayments in your credit history.

Tactic for Mitigating a Low Credit Score

The first thing you should do is check with another lender. Unlike the US system, in Australia, every lender creates their own credit score for you. That means that you may have a better score, and a better chance at obtaining your home loan, with a different lender. To improve your credit score, first obtain a copy and check it for any inaccuracies. Then you can take the following steps:

• Make sure to be vigilant about making all your repayments strictly on time.
• Stay in the same job.
• Avoid making any loan applications for six months or so.

Reason 4: Risky Purchase

Some lenders don’t like financing the purchase of certain types of properties which have resale risk. For example, studio apartments, properties in a flood zone or even rural properties, all may fall into this category.

Tactic for Mitigating Your Risky Purchase

If you are truly committed to buying a property deemed ‘risky’ you should spend time making sure that the rest of your application is strong. Make sure you have a good credit score and a large enough deposit. Lenders may then see you as a good option despite the risk of the property itself.

Reason 5: Incomplete or Inaccurate Application

If your application or supporting documents are incomplete or inaccurate it will be tough for a lender to approve your loan.

Tactic for Mitigating Your Incomplete or Inaccurate Application

In this case you just need to ensure that your application is strictly correct and accurate. Read each line carefully and don’t just throw out numbers that you ‘think’ might be correct. Check and double check everything – your lender certainly will.

Reason 6: Maternity or Paternity Leave or Changing Jobs

If you are about to go on maternity or paternity leave, or are in the midst of changing jobs, lenders may knock back your application. They see you as higher risk because your income status is potentially in flux. Because of that they can’t ensure that you will be in a strong position to make your repayments.

Tactic for Mitigating Your Maternity, Paternity or Job Change Risk

There are many things you can do to prove to a lender that you are still in a strong position to make repayments despite your potential change in situation. Having good savings is an excellent step, as is having a good credit score and a robust career history. If you’re changing jobs, a recommendation from your new employer may help as well.

Reason 7: Retirement Looming

If you are close to retirement age, some lenders may deny your loan application simply because it extends too far into your retirement. The concern is that a retirement-age borrower won’t have enough time in the workforce to pay back the loan before their income begins to diminish.

Tactics for Mitigating Your Retirement Risk

Seek out a lender that understands and accepts mature age borrowers. Then put together an exit strategy – that is a strategy that demonstrates how you will have the loan paid off prior to your retirement.

Speak to an expert

What should you do when your  home loan is denied? Our first and best step is to talk to an expert. Our Lending Loop team can advise you on the right lender for your situation, and help you to get home loan ready so that next time you can get the funding you need.

Give us a call today at Lending Loop, and let’s see how we can help!