Applying for a home loan is both exciting and stressful. When you are successful, there’s nothing like receiving that green light from a lender to say you’re on the home run to securing your dream home.
But it’s important to be aware that even if you do have pre-approval, you can be knocked back for a home loan. Pre-approval is an indication from a lender that they’re likely to approve you for a specific loan, but you still have to meet certain lending conditions.
Here are some of the common reasons why a mortgage application may be denied after you’ve been pre-approved, and what to do if you are rejected.
Your financial situation has changed
A change to your financial situation could impact your home loan application. Maybe you’ve lost your job or are working less since you were pre-approved.
Lenders will look at your ability to comfortably repay a home loan, and if your income has taken a hit of late, then you may be rejected. Likewise, if you’ve changed jobs since getting pre-approved, your lender may deem you to be a risky borrower and decline your home loan application.
Bottom line: avoid changing jobs or selling assets between pre-approval and applying for a mortgage.
Your credit score has deteriorated
If you’ve applied for other credit products since being pre-approved (such as a car loan or credit card), taken on more debt or missed repayments on existing debt, your credit score may be affected. This in turn could impact your ability to get over the line with a lender.
Be mindful of managing your existing debt carefully and avoid applying for other forms of debt after pre-approval.
The lending criteria has changed
In some instances, changes to the bank’s lending criteria could put your home loan application on ice. If they tighten their lending conditions after you were pre-approved, you may no longer be eligible for finance.
In some instances, the lender may have given you pre-approval incorrectly. For example, they may not have properly verified your information or you may have omitted information that affects your home loan application.
Be sure to provide all the right documentation right from the get-go.
The lender has reservations about the property
Lenders may be hesitant to provide finance for certain types of properties, particularly those they suspect may be difficult to sell down the track. Examples may include inner city apartments, properties needing significant renovations and those in high-risk disaster-prone areas.
Check with your lender prior to house hunting about whether they’re less inclined to lend money for certain types of properties.
Interest rates have increased
Say there’s an interest rate rise in the time between pre-approval and your home loan application. The lender may find you can no longer service the loan and your application may be rejected.
Look into whether rate locking is an option (that is, fixing your interest rate before your home loan application is complete) to prevent this from happening.
What to do if your home loan application is rejected
If your home loan application is unsuccessful, you may need to:
- Provide further documentation about your financial circumstances
- Work on improving your credit score
- Shop around for a different lender (but don’t apply to multiple lenders in a short time immediately after a rejection, as this can negatively affect your credit rating)
- Stay in your current employment longer
- Set up a budget and demonstrate your savings ability better
- Find a different property.
Whatever you decide to do, we’re here to help you tackle any hurdles and be approved for a home loan.
Having a mortgage broker on your team can help increase your chances of a successful home loan application, as we take the time to understand your financial situation, as well as the lenders’ requirements.
To chat through your finance options, get in touch today.
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