There’s nothing worse than saving your deposit, finding your dream home, and doing your due diligence, only to have your home loan application turned down. There are a number of reasons why lenders decline mortgage applications; we’ve listed some of these here and we’ve outlined some of the ways you can prepare yourself to ensure a successful home loan application.
Not enough deposit
Not having the required deposit reduces your bargaining power when it comes to lenders’ fees, means you miss out on special interest rates, and ultimately could cost you your loan application.
Lenders need to see some form of genuine saving going into your deposit – they want to know you’ll be committed to making your loan repayments each month.
Ideally, you’ll need to save 20% of the purchase price of a property, but you may be able to apply for a Welcome Home Loan if you meet certain criteria, where you’ll only require a 10% deposit. Remember, you can use the savings in your KiwiSaver if you’re a first home buyer as well as the HomeStart Grant provided you qualify, which could make up a sizeable portion of your deposit. Talk to your mortgage adviser about your finance options to see if you qualify for a Welcome Home Loan or the HomeStart Grant.
Not enough income
In June 2015, the Responsible Lending Code came into force which denotes that lenders have a duty of care not to over-burden people with debt that they can’t afford to pay back. That means lenders must ensure you earn enough to cover your mortgage repayments and still meet your day to day costs, even if interest rates rise.
When planning your budget, you’ll need to factor in the cost of your rates, insurance and property maintenance on top of your mortgage repayments. And if you do need to borrow more, you’ll need to save a bigger deposit or talk to a family member about gifting part of your deposit or acting as a loan guarantor. Your mortgage adviser can talk you through these options to find the best solution.
No proof of steady income
If you’re self-employed or you don’t have a regular income, you may find it difficult to obtain home loan finance, as most lenders will be reluctant to lend without proof of steady income. There are options available though, Low Doc and No Doc loans are suitable for people who can’t provide the necessary documentation that lenders require – for example, if you’re self-employed but you don’t have two years of financial records. It’s vital you get advice from your mortgage adviser if you’re in this situation before submitting your loan application.
Bad credit history
Repaying your loan is obviously a priority for all lenders, and if you have a bad credit rating or a history of not paying back your debts, you could find it impacts on your ability to borrow. Check your credit history with one of several credit reporting companies, and talk to your mortgage adviser about a recovery plan to present to a lender with your loan application. There are still lenders out there who will consider lending to someone with bad credit history.
Property not acceptable
Even if you tick all of the boxes – sufficient deposit, steady income, good credit history – lenders may decline your application if the property you’re purchasing is not acceptable. There are a number of types of homes that lenders deem too risky to lend on, including leaky homes, meth-contaminated homes, homes in unusual locations or homes that only appeal to a very small number of people, and so may prove difficult to sell-on at a later stage. Before you submit your loan application, check that the home you’re buying is acceptable to a lender.
Let’s get you into your home
With changes to lending requirements, it’s important you shop around for the right home loan package to suit your particular needs. Partnering with a Mortgage Express adviser cuts out the legwork as we’re already working with a number of lenders and we’re experienced in finding a lending solution to fit just about anyone. Get in touch with one of our advisers today to talk about your next home.
