Debbie Shankar - 27 Nov, 2013

Common Reasons For Home Loan Rejection

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Your credit history, income and how you manage your financial commitments are considerations that a lender will focus on when you apply for a home loan. A lender wants to see a strong and lengthy financial history, where you are able to meet your financial commitments without difficulty. Lenders also look critically at your background, age and job stability as these are indications of your credit worthiness. In saying this, lending criteria, or the requirements you must satisfy for home loan application approval, varies from lender to lender. Let’s look at the most common reasons  for home loan application rejection.

The Most Common Reasons for Home Loan Rejection

Knowing why home loan applications are rejected by lenders can assist you to avoid rejection of your own home loan application. The 7 most common reasons for home loan application rejection are as follows:

  1. Your payment history is poor. If you pay your bills after their due dates and have a poor record of payment, then this will be recorded on your credit history. A long list of payment defaults over years can give you a poor credit score and can set off a lender’s alarm bells. To overcome this, pay your bills on time and work on developing better financial habits.
  2. A long history of loans. If you have many small loans and your income can just cover these, then your lender may consider your finances too stretched. Stretched financial resources can mean that you’ll find home loan repayments difficult to meet. To avoid this, work at paying your smaller loan off, and then applying for a home loan.
  3. Poor work history. If you can’t hold down a job for longer than 12-months and you have a long list of employers, then a lender may consider you too high a risk. To overcome this hurdle, try to commit to one job and stay there for 2-years or more.
  4. Your home loan was previously rejected. When a home loan application is rejected, this is recorded. A lender will often look at your application history and if previous rejections are listed this may deter them from offering you credit. To make changes here, find out why your application was rejected and then work on fixing these aspects.
  5. Poor savings history. A consistent saving history that spans over years, rather than months, displays your ability to manage your finances. Therefore, the longer your savings history, the better your chances are of securing a home loan.
  6. Property valuation wasn’t satisfactory. A lender will always get a property valued before agreeing to finance a home loan. If a property is on the market for too high a price, is in poor condition or does not meet a lender’s specifications, then a lender may refuse a home loan application. To gain home loan approval, you will need to find a suitable property.
  7. Your credit limit is too high. The general rule of thumb is that for every $1,000 of credit you have, your borrowing power is reduced by $4,000. This means that if you have a high credit limit in place or many credit cards that your borrowing power may not be sufficient  to cover your home loan application amount. To rectify this, reduce your credit limits.

Looking to secure a home loan? If so, contact eChoice and we’ll help you understand how you can find the right home loan for YOU

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