5 factors that may derail your mortgage application

Jan 19, 2022 | Finance, Home Loan

Buying a new home is undoubtedly one of the most exciting time in our lives. But, on the other hand, a mortgage application can be a stressful process as you dive into a world of unknowns.

Let’s look at five factors that may negatively affect your chance of being approved for a home loan.


  • Lying on your application

Lying about your financial situation is a big no-no in the eyes of any bank. For example, not disclosing childcare costs or disclosing only one credit card, when in fact you have three, can add a red flag to your application. 


Lenders share information to prevent fraud, which can also affect any future applications.


  • High debt to income ratio

Lenders will compare your income level against any outstanding loans, including the loan you are applying for. It helps them measure your ability to repay the loan without putting you under financial stress.


For example, a couple earns $200,000 combined. They have a $20,000 car loan, $5000 credit card limit, and are applying for a $700,000 home loan. Their debt to income ratio is 3.62 ($725,000 divided by $200,000). Although it differs for every lender, generally, a debt to income ratio of more than 6 is considered risky.


  • Significant changes in your life 

Lenders like to see stable employment with consistent income. If you have started a new job recently, it can reduce your chances of being approved.


Similarly, a significant expense close to your loan application date is not ideal either. For example, if you lease a new car or take out a loan on a new car, this can result in lenders rejecting your application.


  • Errors on the application paperwork 

A loan application involves providing numerous documents and filling out loads of forms. Make an error in haste or provide documents that are inconsistent with your application, and it will attract additional scrutiny from lenders.


  • Buy now, pay later (BNPL) services

With BNPL services such as Afterpay and Zip becoming increasingly popular, banks are more cautious than ever when reviewing loan applications. This includes assessing your bank statements to ascertain if you use BNPL services. 


A few factors to consider: 

  • Defaulting on your BNPL repayments can affect your credit score.
  • Outstanding payments are considered financial commitments which can impact the amount you can borrow.


What if your loan application is rejected?

Understanding why your application was rejected is essential. Common reasons include a bad credit score, low deposit, or inability to service the loan. 

You should avoid re-applying straightway after being rejected by a lender. Instead, take steps to set up a savings budget, extend your purchase timeline, or reduce existing debt.

Professional advice from a financial adviser or a mortgage broker can help to avoid another rejection.


Seek professional help to increase your chances of being approved

To improve your chances right from the beginning, consult a financial adviser who can help with budgeting, cash flow management and explaining the impact of a home loan on your overall financial goals. 


When you are ready to apply for a loan, consider consulting a mortgage broker to guide you through the loan process. They can provide guidance around items lenders may flag, compare different lenders to get you the best deal, and apply for the loan on your behalf.

Book Your
Free Loan Review

Receive a customised review to improve your savings and reduce the amount you are paying.

Related Blog Articles

Get the biggest bang from your renovation buck

Renovating can be a daunting prospect: from keeping your budget in check; to finding the right tradesman; avoiding additional hidden expenses; and attempting to replicate the results of your favourite renovation show. This article lists seven tips to help you get the biggest ‘bang’ for your renovation buck. Get the biggest bang from your renovation buck

read more

Do you have the right protection for your loan?

Buying a property is one of the biggest investments many people will make in their lives. Understanding the different insurances that can protect your mortgage is an important step in not only getting your property transaction right now but protecting yourself in case of future events that may affect your ability to pay your mortgage. Do you have the right protection for your loan?

read more

The Risk of Losing your Home

With housing prices souring, and mortgages getting larger, have you considered what may happen when interest rates inevitably increase? The unfortunate reality is that many families will face financial distress, rather quickly. This article discusses how just a small increase to interest rates can cause budgets to crumble and what you can do to prepare yourself financially. The Risk of Losing your Home

read more

Should you invest your house deposit?

With property prices high and interest rates low, many potential homebuyers are struggling to save a large enough house deposit. With the use of a case study, this article discusses the pros and cons of investing your savings if you are a few years out from buying a home. Should you invest your house deposit?

read more

How Meme stocks changed investing

Have you heard about Meme stocks? This shorter article explains the buzz around this investment trend and reminds potential investors of the basic rules of diversification and moderation. How Meme stocks changed investing

read more

Authorised Credit Representative 383415 of IFBA Pty Ltd.  Australian Credit Licence Number 383415.
Disclaimer   |   Privacy Policy