If you have had your request for a loan declined, then it is imperative not to rush off to another lender and submit your application straightaway. You need to take a little time and review why you didn’t get the loan, so contact the company who declined your loan and ask them why. It could be that you didn’t supply them with the correct information or you missed something out; either way take time to carefully prepare your loan application before either resubmitting or trying to apply elsewhere.
Ideally take note of the issues presented below before deciding to put in for a home loan and give yourself time to ensure you cover all the possible obstacles that can crop up.
(Also note that if you are a first time buyer then make sure that you choose the right loan suited to your needs and requirements; there are loans specifically for first timers and their guidelines can be different from the ones other borrowers have to meet.)
Main challenges faced by home loan borrowers
• Funding issues
• Servicing issues
• Property issues
Funding issues
Lenders will require security and collateral against your home loan so make sure that not only can you show you have savings to cover the deposit, but that you have made a full and accurate list of any assets you hold. It is important that before seeking a home loan you can demonstrate that you have saved for a genuine 5% deposit, which means ensuring you can provide the lender with a history of your saving activity. Another reason that you can be turned down for home loans is if you cannot show you can supply sufficient funds that will cover 15% of the value of the property you are buying or at least a 10% deposit for new purchases.
Ways of overcoming these issues
Bank statements, savings bonds or a demonstrable savings plan will go a long way towards proving that you are a worthwhile and relatively risk free option for a lender. Try to avoid any major purchases before closing on your home loan as this could lead lenders to become concerned you won’t have the funds to cover repayments. Also make sure that you have prepared a forecast budget so that you can show what the demands on your income will be and that you can cover repayments as well as have something put aside for any emergency bills.
Servicing issues
If you do not have a steady income, or if you have just started work and cannot show at least 3 months’ worth of payslips, then you could find it difficult to get your home loans application accepted. Changes in employment, with employers extending probationary periods from one to three months and up to six months, can also have an impact on your application. If you have just started your own business and cannot demonstrate your tax returns for the last two years and accounts for your trading business, then this can present a difficulty. Lenders will also look at your credit card and store loans as part of your credit history, so if you have a poor credit rating this will certainly affect their decision to lend.
Ways of overcoming these issues
If at all possible try not to make big career changes before applying for your home loan; sometimes this is not possible as with a new job you may have to relocate, but lenders do weigh the stability of your employment. However this may just delay your application until it can be proven that your new work role is going to be a stable position and that you can repay the monthly loan instalments. The same goes for those who wish to become self-employed, and it might be prudent to ensure you can demonstrate you have enough funds from your business before taking out a loan. (You also need to note that lenders take the gross before-tax figure rather than net after-tax figure, which is minus deductions and expenses if you are self-employed).
If you do have credit cards with money owing on them, you might want to consider debt consolidation, which will help present your case in a better light to lenders. If you have cards that you are not using, cancel them or reduce their limit before presenting your loan application, and check your credit file at least 30 days before the application goes in.
Property issues
Prior to buying the property, make sure that you have done your homework and ensured that there aren’t any structural problems that will cost a lot to put right, and that the purchase price of the property is a true reflection of its value. Usually the home loans lenders will need a proper evaluation by a registered valuer so be prepared for this to happen. Ways of overcoming these issues Do some research yourself before putting in your loan application by checking the prices of similar properties sold over the last few months. Also ensure that you have had a structural inspection and gotten some information about the locality of the property. If you buy somewhere and find out a four lane highway is going to be built alongside it, then the value of the property will diminish, so it is worth checking out planning applications and so on at your local council offices.
Final thoughts
Take your time and get organised before you submit your application, and make sure that your application is presented to just one lender at a time. If you are asked for further information and evidence then get it to the lender as soon as possible, and make a list of questions to ask them if you don’t understand anything. Ask if the loan will require mortgage insurance as well and present all your information in a professional and accurate manner – your credibility is on the line as well as your credit rating.
Whether you are purchasing your first home, or the second and third, Westminster National based in Perth, Australia has over 30 years of experience in property finance with consultants who are fully accredited with the Mortgage and Finance Association of Australia (MFAA). With access to over 20 lenders across the country, Westminster National have the capacity to source competitive deals that are tailored to clients’ individual needs. Click here for more information.
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