The top reasons a bank may reject your home loan application

In Australia, lenders are legally required to only offer funds in a responsible manner. In most cases, banks will decline loans because of this law.

Take a look at these top reasons why lenders may turn you down for a mortgage application. The more you know about what could go wrong, the better-equipped you are to avoid it!

You don’t have a big enough deposit
Generally speaking, Australian buyers look to save enough for a 20 per cent deposit on their home loan. In some cases, you may be able to attain a mortgage with less than that plus lenders mortgage insurance (LMI), but that one-fifth mark is a good level to aim for to get loan approval.

If you don’t have a suitable sum set aside for a deposit, a lender may not confidently believe you are capable of taking on a major loan. Saving up a good figure to start with is a good indication that you’re able to budget and work hard, which is exactly what’s needed for mortgage repayments. Plus, it helps minimise a bank’s risk in lending to you, which is also part of the equation.

Considering the mean dwelling price in Australia is currently around $620,000 according to the Australian Bureau of Statistics, that makes the average deposit required just over $120,000. If you can save up roughly this much, you should be in good stead to successfully apply for a loan.

Not enough income
Similarly, your lender needs to be sure that your income – whether that’s just for you or for yourself and a partner combined – will be sufficient to make the mortgage repayments.

If your income doesn’t seem to adequately cover the payments and still leave enough left over to pay for other life basics, your lender may consider it irresponsible to provide you with funds. Your capacity to make loan repayments is also known as the loan’s serviceability, and it’s one of the most important factors in whether you get approved.

Too much risk
Your level of risk can also play a huge role. Your lender will take a close look at your credit history to help determine how trustworthy you are when it comes to paying back loans.

This could be anything from a loan you applied for to purchase a car, to debts you have with stores or other vendors and even credit cards that you haven’t repaid promptly. You may be able to obtain a copy of your own credit history to take a look at what your lenders are seeing by applying for one online with one of Australia’s credit checkers.

Issues with the property itself
Your lender may even consider the property you’re looking to buy, and mark it as a poor investment.

For example, the dwelling may be overpriced, the lender may already have too many mortgage funds tied up in one building (for apartments), or they may deem it too small to be valuable enough for resale.

In most cases, following the steps of saving hard, paying off debts, acquiring a steady job, and being realistic about your property goals, will all help you see your mortgage application approved. Plus, be sure to talk to your lender about what to expect from the process and any common pitfalls you should look out for.