What to do if your home loan is rejected

Home loan application knocked back? Here’s what you can do.

Past credit history is often a big reason why home loans are rejected. It can feel devastating that your ability to plan for the future is determined by past financial mistakes or outcomes.

So, what can you do to move past home loan rejection, and build towards achieving approval in the future? The first step is to understand why your home loan may have been rejected.

Why was your home loan rejected?

Your home loan could have been rejected for a number of reasons.

• Bad credit history. This is a common reason as to why home loans are rejected. You can get a free copy of your credit report every 12 months to check for errors and figure out how to improve.
• Insufficient savings. You need a sufficient deposit and history of saving to demonstrate to your lender that you can manage repayments.
• Poor financial health. Irregular spending, multiple credit cards and high levels of debt are tell-tale signs of poor financial health.

Put simply, the bank has a legal obligation to lend money to their customers in a responsible way. If your loan application was rejected, then it means that the bank has decided that the credit is unsuitable for you.

What NOT to do

Being rejected for a home loan may tempt you into trying another application. But beware of these home loan strategies that will end up doing more harm than good.

• ‘Spamming’ lenders. Think that home loan approval is just a numbers game? Think again. Every application you make is recorded against your credit history. So ‘over-applying’ for home loans will actually decrease, not increase, your chances of successful application.
• Being dishonest. Lying, or even ‘stretching’ the truth, will not work with lenders. They will thoroughly check your loan application—so be honest! Lying is sure to only make matters worse.
• Applying with poor quality lenders. “Low rate home loans. Guaranteed Approval. Call 1800 LEGIT”. These are the catch-cries of dodgy lenders and scammers. Be wary of any business which offers a loan that seems too good to be true.

How to improve your application

• Budget & save. Make sure that your spending habits look as healthy as possible. Stick to a budget, structure your finances and save up a good sized deposit.
• Reduce and reorganise debt. Reduce high-interest debts, such as credit card debt, and look into strategies such as debt consolidation to manage repayments.
• Improve your stability. A loan application with a patchwork of employers and addresses with sure to send a bank manager fleeing. Why? Lenders like stability and predictability.
• Get help. If you’re lost in the high seas of finance, then get an expert to help you navigate the waters. A home loan specialist should be able to help you find finance options suitable for you.

What can you do about a bad credit history?

A bad credit history is one of the key reasons as to why home loans are often rejected. A bad credit history can follow you for up to seven years, and no amount of saving or stability can scrub off a dirty mark on your credit history until this time has passed.

In these cases, however, hope is not lost. It is still possible to get a home loan if you have bad credit, you just need an expert to improve your chances.

Rapid Finance is a leader in discovering finance options for property investors, particularly those who have had trouble finding finance in the past. The team at Rapid will assess your financial situation, present you with lending options and can even advocate for your application by emphasising the positive aspects of your situation.

For more property advice and tips, visit propertybuyer’s online resources.