You’ve found the perfect house, your offer was accepted and you’re already dreaming about how your furniture will look in each room.
Approval for your home loan seems just like a formality and you never dream being declined could stop you in your tracks. But it does happen. Leaving you stressed, frustrated and embarrassed and worse still you can miss out on the property of your dreams.
How often does this happen?
Research by Pepper Money shows being declined is happening more and more to Aussies. In the survey around one in five (18%) respondents had been turned down for a home loan.
Of those who received the dreaded ‘no’ response, 54% just gave up because they were unaware of their other options.
Why are loans declined?
Loans are declined for many reasons and not just because you’re not good with money. It could be due to:
- your employment status,
- type of property or negative comments about the property by the valuer,
- the size of your deposit and where it came from,
- your history with that lender or
- the type of loans that the lender wants to write if they are trying to balance their portfolio.
For example, in the survey above, a quarter of those declined were self-employed or worked part time. Earning your income this way is a lifestyle choice, not a reason to be declined!
With over 2 million self-employed Australians, the inflexibility of the current system could potentially be impacting a lot of people.
What do you do if the bank says ‘no’?
Letting your feelings run away with you is not going to help. Don’t make any rash decisions or apply for a multitude of loans in the hope that someone will say yes.
This will lead to even more enquiries on your credit file that didn’t proceed and make lenders even more cautious when you apply.
Find out why
Ask the lender to give you information about why you were declined. Don’t take it personally. Remember it is a rational decision for the lender based on facts.
They should be able to supply a reason or a combination of reasons. This information is going to be the key to getting approval in the future.
Don’t give up
Just because they said no, doesn’t mean you have no options. There is a raft of lenders each with vastly different approaches to lending and criteria, so it is a matter of finding one that suits you.
Potentially you need to look for a lender who doesn’t do an automated computer assessment of your application. Instead you may need an assessor, a real person, to look over your circumstances, and then decide.
Ask for help
Lenders typically can’t give you advice on what to do next. Now is the time to bring in an expert, someone you can trust and has the expertise to help you.
There are a lot of mortgage brokers out there but what you're looking for is a specialist. It's no time to leave it to a novice as any more declines could seriously impact your chances of ever getting approved.
It’s a good idea to interview specialists and read client testimonials before hiring someone, to get a feel for their experience and depth of knowledge. Ask ‘How many lenders do they deal with regularly?’, ‘Do they get many declines?’ and ‘How many tricky loans have they gotten over the line?’.
Sometimes brokers find these types of applications too much work and are more interested in chasing the next ‘easy’ loan. So, if you're being given the run around, not having your calls returned or emails going unanswered, go elsewhere.
Is there any way to avoid a decline?
The best rule of thumb is to never apply for a loan without having a very detailed conversation with the lender about what criteria they have and whether you qualify. Applying should be the final step in the process, not the first.
When you apply, you should be extremely confident that you meet all the criteria. There will always be things that may pop up that can’t be covered but you need to do your best to confirm as much as you can.
All lenders have idiosyncrasies around what they will or will not accept. Keep your broker and lender abreast of where you’re at with finding a property and if any of your circumstances change. Always ask if the lender that you're pre-approved with has changed any of their criteria since you supplied your information.
Declines are becoming more commonplace so don’t think that it will never happen to you. Having a contingency plan and knowing what to do, could be the difference between missing out on your dream home or moving into it in 30 days.
Peter Ellis is the CEO of Lending Mate™ and is a home finance broker, who has specialised expertise in helping borrowers who are struggling with finance or have been declined. He founded Lending Mate to help restore the power imbalance between borrowers and lenders, and start a movement where borrowers get a fair go. ‘We aim to provide the information, help and guidance needed to put you back in control’. Visit Lending Mate™.
Credit Representative 442518 is authorised under Australian Credit Licence 389328. Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. Your full financial situation would need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.
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