5 factors that may derail your mortgage application

November 4, 2021

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.

 

1)   Providing inaccurate information on your application

Providing inaccurate information 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.

 

2)   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.

 

3)   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.

 

4)   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.

 

5)   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 beingapproved

To improve your chances right from the beginning, consult afinancial 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, please reach out so we can put you in touch with a qualified Mortgage Broker. Mortgage Brokers provide guidance around items lenders may flag, compare different lenders to get you the best deal, and apply for the loan on your behalf.

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The advice in this newsletter is general in nature and does not take into account your own financial objectives, circumstances or needs. You should consider your own personal situation and requirements before making any decisions. If you have any concerns or questions, please contact us.

A copy of our Financial Services Guide can be found on our website:
http://www.vistafinancial.com.au/financial-services-guide/

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