Would-be homeowners and investors, beware: your home loan application may be declined, even if you were pre-approved for finance only a few months ago.
At the moment, lending guidelines, borrowing criteria and application processes are changing by the day, making it difficult even for brokers to keep up, let alone borrowers.
Just this week, home loan applicant Lillian Phelps from the Gold Coast said her mortgage was declined, after the nation’s main LMI insurer changed their policies.
“When my broker plugged in my details initially it all looked fine, but in the process of getting all my documents together to formally apply, the insurer’s LMI policy has tightened up, and I no longer meet the new requirements,” Lillian says.
“I’m self-employed and the insurers want to see two full years’ worth of financials; I only began working for myself late last year, so I don’t have two years to show yet. Even though my husband has worked full time in the same job for eight years, our bank has deemed us ‘too risky’, and we’re back to square one.”
If you find yourself in Lillian’s position and the bank – or their LMI insurer – says no, what can you do about it?
The first step is to ask your broker or bank why your application was rejected.
“Often, it’s a matter of clarifying some details or providing further information,” says Odette Shahnazari, Personal Mortgage Adviser with Smartline. “For instance, it might be an unpaid phone bill that you may not even be aware of that appears on your credit reference report.”
Most lenders will reconsider your application in this type of circumstance, if you can prove that the debt is repaid, she says. “I’d highly recommended that you obtain a copy of your own credit report before applying for a loan, so you’re aware of these things beforehand,” Shahnazari adds. “Your mortgage broker should be able to do it for you free of charge.”
Another reason why your home loan may have been knocked back is if your personal debts are considered too high. High credit card limits can have the impact of reducing your borrowing power by tens of thousands of dollars. It’s believed that a credit limit of $5,000 can reduce your borrowing capacity by up to $25,000, so trimming your credit card limits (or getting rid of some credit cards altogether) could be a good move.
If you tidy up your credit limits and review your credit profile and the banks still decline your loan, you still have one more option.
“If you don't meet the lending criteria of the banks, there are other bank lenders out there who are keen to have your business,” Shahnazari says. “Keep in mind that they often have higher interest rates and higher exit fees.”
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