What To Do If Your Mortgage Application Is Rejected
Buying a home is a big decision, and getting a mortgage is a big part of that process. Unfortunately, not everyone who applies for a mortgage is approved. If your mortgage application is rejected, it can be disappointing and frustrating. But don’t despair!
There are things you can do to improve your chances of getting approved the next time you apply.
Get a free Australian mortgage assessment today.
What are the most common reasons for mortgage rejection?
There are a number of reasons why a mortgage application might be rejected. Some of the most common reasons include:
|Reason for Rejection||Description of the Reason|
Not Enough Income
Lenders want to make sure that you can afford to make your monthly mortgage payments. If your income is too low, you may not be approved for a mortgage.
Too Much Debt
Lenders also want to make sure that you have enough disposable income after paying your monthly debts. If you have too much debt, you may not be approved for a mortgage.
Poor Credit History
Lenders look at your credit history to assess your risk as a borrower. If you have a poor credit history, you may not be approved for a mortgage.
Lack Of A Deposit
Lenders typically require a down payment of at least 5% of the purchase price of the home. If you don't have a down payment, you may not be approved for a mortgage.
Insufficient Employment History
Lenders prefer borrowers who have a stable employment history, as it demonstrates their ability to maintain a steady income. If you have recently changed jobs or have gaps in your employment history, it may raise concerns for lenders and potentially lead to a mortgage rejection.
Property Appraisal Issues
Lenders assess the value of the property you intend to purchase through an appraisal process. If the appraised value comes in lower than the agreed-upon purchase price, it can create issues. Lenders may hesitate to approve a mortgage if the loan-to-value ratio is too high or if they perceive the property to be overpriced.
When applying for a mortgage, you need to provide various documents to support your application, such as proof of income, tax returns, bank statements, and identification documents. Failing to provide complete or accurate documentation can result in a rejection, as it hampers the lender's ability to assess your financial situation.
High Loan-To-Income Ratio
Lenders evaluate your ability to handle mortgage payments by considering your loan-to-income ratio (the percentage of your monthly income that would go toward mortgage repayments). If your loan-to-income ratio exceeds the lender's acceptable limit, it can lead to rejection as it indicates a higher risk of default.
Issues With The Property Itself
Sometimes, mortgage applications can be rejected due to issues related to the property itself. This can include factors such as the property being in poor condition, located in a high-risk area (such as a flood zone), or having legal complications (like outstanding liens or title disputes).
Inadequate Credit History
While poor credit history was mentioned earlier, having little to no credit history can also pose challenges. Lenders rely on credit reports to assess your creditworthiness, and without a sufficient credit history, they may find it difficult to evaluate your ability to handle debt responsibly.
It’s important to note that each lender may have specific criteria and requirements, so the reasons for mortgage rejection can vary. Consulting with a mortgage professional and working on improving any potential weaknesses in your financial profile can increase your chances of mortgage approval.
Get a free Australian mortgage assessment today.
What to do if your mortgage application is rejected
In addition to the steps mentioned above, here are some further actions you can take if your mortgage application is rejected:
- Review and address other potential issues: Along with the specific reason for rejection, review your entire financial situation and address any other potential concerns. This may include reducing your existing debt, resolving outstanding disputes or judgments, or resolving any issues with your employment history.
- Seek guidance from the lender: Reach out to the lender who rejected your application to gain further insights into their decision. They may be able to provide specific feedback and guidance on how to strengthen your application for the future. Understanding their criteria and requirements can help you better prepare for your next mortgage application.
- Consider alternative lenders: If traditional lenders have rejected your application, explore alternative lending options. Some lenders specialise in working with borrowers who have unique circumstances, such as self-employed individuals or those with less-than-perfect credit. These lenders may have different qualification criteria and be more flexible in their assessment.
- Build a stronger financial profile: Take steps to improve your overall financial profile. This can include reducing unnecessary expenses, paying off outstanding debts, and establishing a consistent savings pattern. By demonstrating financial stability and responsibility, you can enhance your chances of mortgage approval in the future.
- Work on a co-borrower or guarantor: If your current financial situation does not meet the lender’s requirements, consider applying for a mortgage with a co-borrower or finding a guarantor. A co-borrower is a joint applicant who shares the responsibility of the loan, while a guarantor provides legal assurance to the lender that they will cover the mortgage payments if you are unable to do so.
- Take time to reassess and reapply: After addressing the reasons for your initial rejection and improving your financial standing, take the time to reassess your options and reapply for a mortgage. Waiting until you have significantly improved your financial situation can increase your chances of approval.
Remember, every lender has their own criteria and considerations, so even if one lender rejects your application, it doesn’t mean that others will do the same.
Working with professionals such as mortgage brokers or financial advisors can provide valuable guidance and support throughout the process. They can help identify suitable lenders, offer advice on improving your application, and increase your chances of obtaining a mortgage in the future.
What To Do If You Are An Aussie Expat Or Foreign Applicant
If you’re an Aussie expat or a foreigner looking to apply for a mortgage in Australia, there are specific considerations and steps you can take to increase your chances of getting approved:
- Research lenders that cater to expats or foreigners: Some lenders in Australia specialise in providing mortgages to expats or foreigners. Research and identify these lenders who have experience working with borrowers in similar situations. They may have specific loan products and criteria tailored to your needs.
- Understand visa requirements: As an expat or foreigner, your visa status can affect your eligibility for a mortgage. Some lenders may require specific visa types or visa durations to consider your application. Make sure you understand the visa requirements and check with lenders about their policies regarding expats or foreigners.
- Establish a strong credit history: Building a good credit history is essential for mortgage approval. If you’re an expat or foreigner, you may not have an extensive credit history in Australia. However, you can start by opening a bank account, obtaining a local credit card, and paying your bills on time. Building a positive credit history demonstrates your financial responsibility and can improve your chances of getting approved.
- Provide additional documentation: Lenders may require additional documentation from expats or foreigners to assess their financial situation. This can include employment contracts, proof of income, bank statements, and tax returns from both your home country and Australia. Be prepared to provide these documents to support your mortgage application.
- Work with a mortgage broker: Engaging a mortgage broker who specialises in expat or foreign mortgages can be highly beneficial. They have knowledge of the lenders and loan products available in the market and can guide you through the application process. A mortgage broker can help you navigate any complexities, understand the requirements, and increase your chances of approval.
- Save for a larger deposit: A larger deposit can enhance your eligibility for a mortgage. Saving for a higher down payment shows financial stability and reduces the lender’s risk. Additionally, a larger deposit may help you qualify for more favourable loan terms, such as lower interest rates.
- Seek professional advice: Consulting with a financial advisor or mortgage specialist who understands the unique circumstances of expats or foreigners can provide valuable guidance. They can assess your specific situation, advise you on the best course of action, and help you prepare a strong mortgage application.
Remember, the specific requirements and policies for expats and foreigners can vary among lenders. It’s crucial to conduct thorough research, seek expert advice, and be prepared to provide the necessary documentation to increase your chances of obtaining a mortgage in Australia.
Getting a mortgage rejected can be disappointing, but it doesn’t mean you can’t buy a home. By taking steps to improve your financial situation, you can increase your chances of getting approved the next time you apply.
If you are considering reapplying for a home loan in Australia, we encourage you to reach out to Odin Mortgage. We are a leading Australian mortgage service provider for Australian expats and foreign nationals globally. We can assess your situation and help you find the right professionals to meet your needs.
Get a free Australian mortgage assessment today.
Frequently asked questions
What if I don't know why my application was rejected?
If you don’t know why your application was rejected, you can contact the lender and ask for an explanation. They may be able to provide you with more information about why your application was denied.
How long should I wait before applying for a mortgage again?
There is no set answer to this question. It depends on the reason why your application was rejected. If your application was rejected because of a small issue, you may be able to apply again right away.
However, if your application was rejected because of a major issue, you may need to wait a few months or even a year before applying again.
What can I do to improve my chances of getting approved for a mortgage the next time I apply?
There are a number of things you can do to improve your chances of getting approved for a mortgage the next time you apply. These include:
- Improve your credit score
- Increase your income
- Save for a down payment
- Work with a mortgage broker