6 tips to avoid having your home loan application declined

Now’s not a bad time to have a crack at the property market, with house prices across the nation recording dips.

But in order to snap up your dream home, you’ll probably have to apply for a home loan.

There are plenty of reasons why your home loan application might be denied: you can’t prove you can pay it off, your credit score isn’t great, or the loan structure isn’t right.

So to get it right the first time, there are a few boxes you need to tick in order to make sure your application gets the green light.

Here’s how to avoid having your home loan application declined:

1. Chat to a broker or a lending specialist

As they say, you don’t know what you don’t know.

One of the best ways to get off on the right foot is to speak to someone who specialises in the area that will walk you through what you can afford and what your borrowing capacity is.

“The number one on the list is to have a consult with a lending specialist,” Smartline mortgage broker Wayne Dive told Yahoo Finance.

“That will give you a guide of where you are today, a stocktake. And it might mean you need to pull your head in on your spending to meet the banks’ requirements.”

So don’t apply for the loan blind: it costs nothing to have a chat, he said.

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2. Budget – and tidy up your expenses

How will you know if you can afford mortgage repayments? Lenders will need to know what your living expenses are before they approve your loan, and your application will involve disclosing them – all of them.

“Fill out a budget calculator. Do your own budget, see what you can afford,” said Dive.

The good news is, though, a lending specialist or broker can assist you with this.

Not all lenders are the same: requirements can vary from lender to lender, but they’ll all be keeping an eye out to make sure your expenses are reasonable.

So, for instance, if you’re a family of four but you claim to only spend $500 a month on food, it might raise an eyebrow or two.

“These days, banks want your credit statements and your wages account statements,” said Dive, adding that they’ll look back as far as 90 days. “So it’s hard to hide your expenses other than to tidy things up.”

3. Full disclosure

Disclosure is a major pillar of home loan applications, said Dive, so the best rule of thumb here is to be as open and transparent as possible with your expenses.

“Banks are looking for undisclosed debts or payments,” the Sydney-based mortgage broker warned.

“Why would a lender decline a loan? Because of non-disclosure of expenses such as private school fees.”

Other expenses, such as gambling or even Uber Eats habits, may not bode so well, so it’s best not to go overboard on these in the three months leading up to your application.

4. Get your credit score in order

This is straightforward: a sub-par credit rating could see you pay more interest and limit your home loan options, and very poor credit rating might mean you won’t get approved at all.

So, in order to be able to head to the bank with full confidence, make sure you’re staying on top of the amount of credit enquiries you’re getting by not having too many credit cards.

“If you have a lot of cards, it shows you’re relying on credit rather than using your own savings. More credit enquiries means lower credit score. If your credit score is too low, you’ll be declined.”

But don’t stress: there are ways to improve your credit health.

5. Show you’re stable

Lenders are looking for reassurance that you’ll be able to pay off your loan repayments, so they’ll be looking for stability in your employment and in your residence.

On top of that, they’ll be measuring you against something called ‘assets for age’, which means lenders have guidelines (that won’t be revealed to you) that stipulate someone of a certain age should have a certain amount of assets.

For example, they might deem a 35-year-old should have at least $50,000 worth of assets.

“Ensure that all your assets are disclosed. If your home contents are clothes, jewellery, a stereo, furniture, get the number right; don’t undervalue your assets,” said Dive.

6. Do the maths yourself

There are mortgage repayment calculators available online, but a lending specialist can help you with this, too.

To figure out whether you can make your repayments, follow this formula: take the cost of your current living expenses (minus your rent) and add it with what your monthly repayments might be.

“Match that up with your income and you’ll soon work out whether you can afford it or not,” Dive said.

“This is your first test before you even contact the bank.”

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