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Everyone’s home loan application is unique, and all lenders have different rules and requirements that determine whether or not your loan will be approved.
If you’re application has been knocked back, here are five possible reasons why that might be.
1. Your Deposit is too Small
In order to secure a loan, you’ll probably need to have saved a 5-10 percent deposit. In fact, while borrowing 95% of the property price is relatively common, it is still considered high-risk by lenders.
If you are only able to save a small deposit, it can help to have the assistance of an experienced mortgage broker who knows how to present your application to the bank.
2. Your Employment does not Meet the Lender’s Requirements
Although all lenders have different policies, most require you to have been at your current job for more than 6 months, or in some cases more than 12 months.
If you are self-employed, lenders may require you to have been working that way for at least two or three years.
Lastly, under the National Consumer Credit Protection Act, banks cannot give loans to those without a source of income. In other words, no job means no loan. There’s no way around it.
3. You have Bad Credit History
You will not qualify for a home loan if you are currently bankrupt. However, if you are adischarged bankrupt, you may qualify for a loan with certain lenders.
If you have paid outstanding defaults on your credit file, you may be able to secure a mortgage. Defaults will affect the amount you can borrow, regardless of whether they have been paid or not.
Too many enquiries with numerous lenders will also make your credit history look bad. If you’ve made more than two enquiries in the past six months, you may struggle to find a lender.
4. You’re Too Young or Too Old
You cannot secure a home loan if you are under 18 years of age, and being between the ages of 18 and 23 can lower your credit score. If you are in this age group, you’ll most likely have an inadequate (short) credit history. Therefore, you cannot prove you are a reliable borrower.
Legally, lenders cannot withhold a loan due to your age. However, if you are over 45 years of age, banks may ask you if you have an exit strategy for paying off your mortgage. For example, you could sell an investment property to pay off the mortgage, or downsize to a smaller home once your children move out. These strategies show the lender that you will be able to pay off the mortgage even if it extends into your retirement.
5. You Want to Purchase a ‘High-Risk’ Property
Properties that have a select market may be considered ‘high-risk’ by some lenders. Banks need to know that if you default on your mortgage they can easily sell the property. Particular environments and limited accessibility can influence a lenders final decision.
Similarly, some banks are wary of financing a loan that will be used to purchase multiple properties on one title. In most cases, it’s much easier to sell a single dwelling than a block of units.
If you’re concerned about your home loan application being knocked back and are looking for professional help, don’t hesitate to get in contact. We can review over 30 lenders in order to find the home loan that best suits your circumstances. Call us on 02 9068 6644 or send us an email.