Why was my home loan application rejected?

Applying for a home loan can be exciting but also stressful. While pre-approval can feel like a significant step toward homeownership, it’s important to know that pre-approval is not a guarantee.

There are still several reasons why your home loan application might be rejected after getting pre-approval. Understanding these reasons can help you avoid surprises and plan ahead.

Take the time to review your finances, stay on top of any changes, and consult with us about potential pitfalls.

Common reasons for rejection

1) Your financial situation has changed

Changes in your financial situation, such as losing a job or a reduction in income, can lead to a loan rejection. Lenders assess your ability to repay the loan, and if your income is reduced, they may deem you a higher risk. Even a job change can be seen as a risk to your financial stability.

Tip: Avoid significant financial changes between pre-approval and final approval. This includes changing jobs or selling assets.

2) Your credit score has dropped

Any new debt, missed payments, or changes to your existing debt profile can negatively impact your credit score. If your score drops, lenders may reconsider their decision.

Tip: Manage your debt responsibly, avoid new credit applications, and keep your repayments on time after pre-approval.

3) Lending criteria has changed

Sometimes, the lender’s policies or criteria might change between pre-approval and your final loan application. Tighter lending conditions can result in ineligibility even if you initially qualified.

Tip: Keep communication open with your lender and make sure to provide accurate and complete information from the start to avoid delays or miscalculations.

4) Lender’s concerns about the property

Lenders may be hesitant to approve loans for specific property types that are considered higher risk, such as inner-city apartments or properties in disaster-prone areas. They need assurance that the property is a good investment that will hold its value over time.

Tip: Check with your lender about property types they are less willing to finance before you begin house hunting.

5) Interest rates have increased

If interest rates rise between your pre-approval and final application, lenders might find that your financial profile no longer meets the criteria to service the loan.

Tip: Consider rate locking, which allows you to lock in your interest rate before completing your loan application.

What to do if your application is rejected

If your application is rejected, don’t panic. There are steps you can take to improve your chances next time:

• Provide additional documentation: If your financial situation is solid, more documentation might help clarify any issues.
• Work on your credit score: Pay off existing debts and avoid new ones to boost your credit score.
• Stay in your current job: Remaining in stable employment can show lenders your ability to repay.
• Explore other lenders: Sometimes, a different lender might have more flexible criteria, but avoid making multiple applications in quick succession as this can harm your credit score.
• Review your property options: Look at properties that might be easier for lenders to finance.

At FinancePath, we understand the complexities of the loan process and are here to guide you every step of the way. As mortgage brokers, we tailor our advice to your unique situation, improving your chances of a successful application.

Let’s Get You Approved If you're ready to take the next steps or have faced hurdles in your home loan journey, give us a call at 1300 780 440 or book a 10-minute chat with our experts. We’ll help you navigate the process, understand your options, and get you closer to owning your dream home.