You found the perfect property, you went to the bank, you collected all your paperwork, answered all their questions and just like that you’d applied to become a home owner. Your excited and nervous all at once, the anxiety of waiting for their response has given you a small stomach ulcer! The days tick by and then you get a call telling you your application has been declined. Your heart drops and you feel like a popped balloon.
But the question is, where to next? Do you simply admit defeat and walk away or do you keep fighting? My go to is to always keep fighting. I’ve said it before and I will say it again. Just because one bank says no, does not mean that it’s a definitive no. Not a chance.
Let have a look at some reasons a bank said no and see what solutions there might be.
Servicing Not Evident
This one is a perfect reason not to give up.
Every bank has a different policy on the income they can and can’t use and if you’re self-employed this becomes even more evident. Some will include overtime while others will only include some of it.
Some will also look at your accounts and despite you saying you live off baked beans, your accounts don’t reflect this!
It’s a good idea to print your statement and go over it with your broker and get a grasp on what you’re really spending. It can be easier to work backwards by knowing how much the banks expect you to spend and then create the budget to reflect and live this budget in the real world for 3 months. If it’s comfortable then go for it. If it’s not, then maybe it’s worth looking for a cheaper property or asking for a pay rise 😉
Poor Credit History
What was the poor credit from? And for how much? Has been paid or not? Find out all the details, go see a broker and ask what solutions they have. You may be able to stay with a tier one lender depending on the circumstances.
If you feel the credit listing is unjust, it may be worth speaking with a credible credit repair firm to see if they can have the mark removed and then re-apply for the loan.
Many people see the advertisements for a 95% loan and diligently save/beg or borrow their 5% deposit and hit up the first bank they walk into. Before applying with a bank make sure you’re a match made in heaven with regards to their rules around deposits.
You may need to show 3 months transaction history, this might not be possible if Mum and Dad transferred the money to you yesterday!
The other part to this equation is that you need to factor in mortgage insurance and either have this amount saved up to pay it or alternatively increase your deposit to around 8% so that the bank can add this amount to your loan bringing the total amount you’ve borrowed up to the 95% of the property value.
Most 95% loans that are advertised are in fact 92% loans + mortgage insurance.
There are different deals and different policies though and with some careful planning you could certainly still have a shot if you apply at the right bank.
Credit Score Declined
Been a bit trigger happy with credit applications? New car, new phone, personal loan for the holiday and a credit card to cover the expenses?? Hopefully this isn’t you! But, if it is, your credit score may be looking a little worse for wear.
If you go to a bank (and this includes a vast majority of the banks), you will be automatically credit scored and auto declined. When the computer says no, there is not a lot anyone can do.
You need to look at a bank that has humans assess the deal first and therefore allow you to explain why you’ve had so many credit enquiries.
Length Of Employment
Dream new role and a pay rise? Time to use this money to buy your dream home to match. Just be careful though as the time required in a new job can range from 1 day to 12 months. This is an easy one to be declined if you don’t check the policy first.
See a good broker and this shouldn’t happen
More and more now the banks are looking through your accounts to confirm not only your living expenses but also undisclosed debts. Run through your statement and just double check all those auto debits and make sure they’re all included in your application.
If you’ve missed one and the bank you applied with won’t budge or the deal doesn’t work with the missing debt included you can certainly run the deal through your broker with some other lenders to see if you can find a match and reapply. You will just need to explain your previous application didn’t proceed.
Property Valued Poorly
This can a big problem with new builds in new areas as there can be limited comparable sales. Where possible get your valuation done upfront to save you the pain of going through an application.
Options here would include to get another valuation through another bank (it’s not a science and can vary greatly between valuers).
Alternatively you would need to raise more funds to cover the shortfall.
Mortgage Insurance Declined
Like the banks, each of mortgage insurers have their own rules. So even though the bank said yes, sometimes the mortgage insurer says no.
Best way here is to find out why they said no and see if one of the other mortgage insurers would accept the deal.
Or go with a non bank lender that instead charges a risk fee and therefore don’t require a second set of eyes.
You can see from the above that just because you were declined be a bank doesn’t necessarily mean you’re not credit worthy. You might just not be the best match.
Depending on the why, it is always worth speaking to a broker to see if armed with the reason for the decline there could be a more suitable alternative.
As always, if you would like to discuss this further please feel free to call 0410 413 196 or email firstname.lastname@example.org