Avoid the pain of home loan rejection

What lenders don’t like

• Not enough deposit. Generally, you will need to put down around 15–20 per cent of the total purchase price of the property as a deposit. That doesn’t mean you have to have saved that much – it could include a first-home owner grant, if you are eligible.
• The property is overpriced. If the bank assesses that comparable properties are valued at a lower price, it may well assume that it won’t get its money back on resale if you default on your loan.
• Overstretching. Trying to buy a million-dollar property on a low income just isn’t going to cut it. The lender will instantly reject your claim to be able to afford the repayments.
• Debt-to-income inequity. When determining your qualification for a mortgage, a lender looks at your debt-to-income ratio, or the percentage of your gross monthly income that you spend on debt.
• Black marks on your credit rating. Your credit file plays an essential role in the approval of a loan. It’s a record of your current debt, loans you have applied for, whether you have defaulted on payments or not paid bills on time. So long as you’ve paid your debts or have a good excuse, your credit rating shouldn’t affect your ability to get a home loan, but bill defaults or loan application refusals might need to be resolved.

Avoid the pain

There are a few steps you can take right now to ensure all the information available to you is accurate and up-to-date so there are no unwanted surprises when you apply for a home loan.

• Find out what is on your credit file. If there are incorrect details such as an overdue account that has actually been paid but not updated on the file, have them corrected before applying for a loan.
• Do your homework. Read property news sites, online forums, social media and loan-comparison sites to familiarise yourself with the market.
• Start saving now so you have sufficient deposit for the home you want.
• Have your paperwork ready. Gather evidence of your employment, income, assets, liabilities and expenses. You will need to provide your driving license or other ID, recent pay slips, tax returns and bank statements.

Even if you think you can easily afford your dream home, lenders approve your mortgage based on their own guidelines, not yours. Now that you know what they’re looking for, you can be prepared.