What to do if the Bank Denies Your Loan Application

A denied home loan application may be inconvenient, disappointing, and extremely stressful, but it doesn’t have to be the end of your home owning dreams. If you take a little time to adjust your approach and get all your ducks in a row, it might only be a minor setback.

With that said, here’s everything you need to know to make sure your next application is successful.

Find Out Why Your Application was Denied

If you ask your bank or lender why your home loan application was denied they’ll usually tell you, and once you understand what went wrong you can begin to fix the problem. These are some of the most common reasons for loans being denied:

• Your deposit was too small.
• You have defaults on your credit file or a poor credit score.
• You don’t have enough proof of savings.
• There’s no evidence that you can afford to make repayments, or your income is too low.
• There are issues with the property.

Regardless of the reason your lender gives you, there’s almost always a way to fix the problem, so there’s no need to panic.

Check Your Credit File

Your credit file is a record of your debt, including any late repayments and defaults. If yours is in bad shape your bank could deny your loan application.

Check your file with a credit reporting agency like Equifax or Experian and look out for any mistakes, or items that are listed twice. If you find anything you can either ask the credit reporting agency to fix the mistake or contact whoever listed the error to ask them to withdraw it. You can also repair your credit score over time by repaying your debt and making repayments on time.

Pay Off Your Debt

If you’ve got a lot of other debt, lenders may be hesitant to accept your loan application. Before you apply again the best move is to pay it all off and you’ll have a much better chance of securing a new home loan.

Save a Bigger Deposit

Lenders like to see that you have put money into a savings account yourself every month to accrue your deposit. It proves to them that you can live within a budget and afford to make mortgage repayments.

Lenders also like borrowers with large deposits – and the bigger the better. Aim for 20% at minimum and your application will have a much better chance of being accepted.

Maximise Your Income

If you’re not earning enough money to make mortgage repayments without putting yourself under financial stress, banks won’t lend to you (especially in the wake of the Royal Commission). It may be easier said than done, but increasing your income is one of the surest ways to improve your chances of being approved for a home loan.

Consider a Guarantor or Collateral

If you already own property you may be able to use it as collateral to secure your next loan. This essentially means that if you can’t make your mortgage repayments the bank has the added security of being able to sell your other property or properties to recoup any losses.

Alternatively, you could get someone in a better financial position than you (parents are the standard go-to in this situation) to guarantee your loan. This will increase the chances of your application being accepted, however it will also mean that whoever guaranteed your loan is responsible for it if you can’t make repayments.

Choose Another Property

If you default on your loan then your bank will eventually sell your property to recoup their losses. For that reason, if you apply for a home loan for a property that is overvalued or may be difficult to sell your bank will be more likely to deny your application. Choose another property and get a professional valuation to solve this problem.

Try a Mortgage Broker

Mortgage brokers have relationships with lenders and plenty of experience helping their clients get loans approved. If you’ve been denied by your bank, getting expert advice and a helping hand from an experienced broker could make all the difference next time around.

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