So you applied for a home loan. You waited anxiously for a week while the lender scoured your credit file, your pay slips, your bank statements and your loan documents, only for them to come back with a shake of the head and a big red ‘X’ on your application (figuratively speaking of course, there are much more diplomatic measures in place to inform you that the bank have refused to give you a home loan).
What do you do from here? There is always a place for emotion (after all, you’ve just been told your dream cannot be fulfilled) but sulking for an extended period isn’t going to get you anywhere – especially not into your dream house!
Here are this writer’s suggestions for what to do in the face of rejection.
Tweak your application.
An initial decline shouldn’t be thought of as the ‘be all and end all’ in your home buying journey. While the lender may have said ‘no’ based on the information received, there is always the opportunity to make adjustments to your application. Your broker will be full of suggestions on how to mitigate rejection. Changes could include (but are certainly not limited to):
Reducing your LVR; if you can source funds from elsewhere and bring your loan to value ratio down to a reasonable figure (below 95%), then lenders may be willing to renegotiate.
Opting for a guarantor; if you have a spouse or parent that is willing to put a portion of their own assets down as security on your loan, this will make the lender feel a lot more confident about loaning you the funds.
Trying a different bank; lending requirements vary from lender to lender, so while one bank might not favour your application, the next may see your financial situation in a whole different light.
Clean up your credit history.
Your rejected home loan application doesn’t have to be viewed as a failure. Adopt a ‘glass half full’ approach, and use the lender’s feedback as a guide to help you clean up your credit rating. There may be outstanding debts that you were completely unaware of due to a range of possible reasons (change of address, forgotten accounts, identity theft etc.). Your rejected home loan application will bring these to your attention, and help you to tidy up the black spots before you next seek credit.
Reduce overheads and increase savings.
Perhaps your borrowing power is limited by your seemingly never ending car loan. The way the lender sees it, the car loan repayments would reduce the amount of income left to service your new mortgage. Look at this as constructive criticism; your declined application has demonstrated that this car loan (or any outstanding debts) is a point of contention, so try to bite it down in chunks as quickly as you can.
Once you have tidied up your debts, it’s time to focus on the savings. Use the rejection as motivation; forgo life’s little luxuries and put the funds straight into a savings account – you’ll thank yourself when you finally hear those two wonderful words, “unconditional approval”.
Source a cheaper property.
When a bank declines your loan application, don’t take it as a personal attack. It is simply their way of telling you that they feel you cannot comfortably manage such a significant amount of debt, based on your current income and lifestyle. Amount is the operative word here; while you may not be able to afford your desired property, by aligning your expectations with reality, you should be able to find a slightly cheaper home that will make you just as happy. A triple garage, fancy tap wear, cathedral ceilings; while you may desire the opulent and lavish – perhaps these are the types of things that should be placed in the ‘wants’ column, and for now, your sole focus should be on the ‘needs’.
Having your home loan application declined can be a difficult thing to overcome. The house was a part of your future, until all of a sudden it wasn’t. While it may be hard, try to think of this as a learning curve. You have gained invaluable insight into your financial situation, and you can use this to better position yourself for future property purchasing opportunities. Every cloud has a silver lining!