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  • Writer's pictureColin Green

5 Surprising Reasons Why Your Home Loan Application Might be Rejected

Updated: Aug 21, 2023

We often get asked for our top tips for quick and easy home loan approval and our advice is generally the same. If you’re applying for a home loan and it’s considered a ‘straightforward’ application, the process is usually fairly simple if you have a mortgage broker to support you. As long as you’ve ‘done your homework’, identified the products and lenders that suit your needs, have the necessary deposit, have gathered the required documents including proof of income and savings and submitted the application correctly, you shouldn’t run into too many issues. However, there are a few surprising reasons why a home loan application may be rejected. Let’s take a look:⁣


sheet of mortgage calculations and a calculator


✔️ Spending too little (or too much)

You might be surprised to learn that unrealistic cuts to your expenditure can be as much of a red flag for many lenders as indulging in too many luxuries. ⁣This is because anything that looks like it’s at the extreme ends of spending tends to make you look like a riskier prospect when it comes to financial stability. Lenders usually want to see a demonstrated history of saving from your income to prove that you’re able to manage your money. A lack of savings or erratic spending behaviour might cause the lender to think you lack financial discipline.


✔️ Credit cards - even with a zero balance

While it’s true that having credit cards can help to build your credit score, they can also be a red flag to some lenders. What many people aren’t aware of is that decisions aren’t based on what your monthly credit card payments are but rather lenders consider the cumulative credit limit of your credit cards. This is because they see your credit limit as a potential debt level in the future. You’ll need to prove you have the money spare to repay your credit limit within 3 years. ⁣


✔️ Buy now pay later

Many potential home loan applicants are also surprised to learn that the use of BNPL options such as Afterpay, Zip and Klarna has also impacted the success of mortgage applications. Having multiple BNPL accounts and missing payments can make you look like a riskier prospect to some lenders and can see your credit score dip. This is because these accounts are included in your total liability figures and can potentially indicate that you have have a lifestyle where you spend money you don’t have and have a habit for debt.⁣


✔️ Poor credit history

A low credit score may indicate to the bank that the applicant is a high-risk borrower. Even a few minor indiscretions such as a few late payments on your credit card, unpaid bills or defaulting on a personal loan can be cause for concern in the eyes of lenders. And having a home loan application rejected can negatively impact your credit score even more. ⁣It’s always a good idea to double check your credit score, review your credit report and address any errors or issues before applying for a loan. This is where it also pays to work with a mortgage broker as they have the expertise to advise you what needs to be done before you apply for a loan and they can reduce the risk of your application getting rejected.


✔️ Type of income

As we mentioned in our last blog, contractors or self-employed home loan applicants may find it more difficult to secure a mortgage. Similarly solo applicants sometimes face a greater level of scrutiny. It’s all about being able to demonstrate financial stability and that you’re relatively low risk. As a self employed person your income may be seen as less predictable and you are therefore a higher risk and lenders may reject on these grounds.⁣ Similarly the bank may view an applicant's employment history as unstable if they have a history of frequent job changes which may result in a rejection.

Trying to navigate mortgage applications on your own can be headache-inducing. It is essential for home loan applicants to be aware of all the factors that might affect their chances of success and address any potential issues before applying for a home loan. Getting reliable professional advice can increase your chances of approval and lead you toward mortgage application success. ⁣⁣


An experienced mortgage broker from CJG Finance can help you navigate all the documentation required, highlight the areas of risk in your application and we can also potentially save you from multiple rejected applications which could also damage your credit score.


To find out more, contact us or call Colin at CJG Finance on: 0402 413 917 or email him:

cgreen@cjgfinance.com.au

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