Getting the dreaded “denied” on your home loan. This can feel disheartening. Especially when you’ve already set your eyes on the perfect property. But it’s not yet the end.

There are some things you can do to understand the reasons behind this verdict. With this, you can improve your chances for approval. Securing a home loan Sydney lenders will accept.

So, what happens next?

Understand Why Your Application Was Rejected

You must first understand why your application was declined before making any moves. That’s because lenders assess applications based on various criteria. They do so to determine the risk involved in approving a loan. Knowing what went wrong gives you a clear starting point. Helping you address the issue and improving your chances of approval. Common reasons include:

1. Low Credit Score: This reflects your borrowing history and financial behaviour. A low score could be due to missed payments and defaults. Or you could also be using credit too much. This signals to lenders that you cannot reliably repay the loan. Making them hesitant to approve your application.
2. High DTI Ratio: Lenders compare your monthly debt payments to your income. They judge your ability to repay loans based on that. A high ratio shows you’re over-leveraged. This increases the likelihood of defaulting on new obligations.
3. Incomplete Documentation: Missing documents can badly affect your application. Even minor errors. Lenders need comprehensive information to assess your financial standing. Missing payslips, bank statements, or incorrect personal details can cause delays or outright rejection.
4. Unstable Employment: Lenders look for steady income. This ensures you can manage regular payments. Meanwhile, changing jobs frequently raises red flags. So do long gaps in employment. Have you been in your current role for less than six months? That also looks bad.
5. Loan Amount Too High: Did you request a substantial amount? The lender may have deemed it too high based on your income and expenses. They may feel the loan would strain your finances. Increasing the risk of default.

What to do? Request a detailed explanation from the lender regarding your application’s rejection. Don’t worry, they are legally required to provide exact reasons. Once you get the info, you can work on exact areas that need improvement.

Check Your Credit Report

This plays a big role in your loan eligibility. So, was your application denied because of poor credit? Here’s how to address it:

1. Obtain Your Credit Report: You can get a free annual credit report online. Check agencies like Equifax or Experian.
2. Look for Errors: Ensure all information is accurate. Dispute any errors immediately.
3. Pay Off Debts: Reduce credit card balances. Settle overdue bills. These will improve your score.
4. Avoid New Credit: Don’t apply for new credit lines. As this can lower your score further.

Improving your credit score may take time. But it’s a critical step for securing a future home loan Sydney lenders will approve.

Review Your Debt-to-Income Ratio

Do you have a high ratio? This can make lenders hesitant to approve your loan. Always aim for a ratio below 36%. As this is generally considered manageable by lenders.

How to Improve It:

• Reduce Debt: Any high-interest loans? Pay them off first.
• Increase Income: Take on additional work, if feasible, to raise your earnings.
• Lower Loan Amount: Consider purchasing a property within a lower price range.

Strengthen Your Savings

Can you provide a big deposit? That way, lenders will have a better opinion of you. That’s because a large deposit doesn’t just make your loan-to-value smaller. It also shows financial stability.

Tips for Building Savings:

Create a budget to identify unnecessary expenses.
Automate savings contributions.
Look into government grants or schemes for first-home buyers, which may reduce the deposit required.

Reassess Your Loan Application

Take a step back and reevaluate your application. Look for areas of adjustment. Such as:

• Loan Amount: Try borrowing less. It may improve your approval chances.
• Loan Type: Explore other options. Like fixed-rate loans and split loans. You can also go for interest-only loans. It depends on your financial situation.
• Documentation: Double-check all forms. Also income proofs and identification. Make sure they’re accurate and complete.

Consider Alternative Lenders

Just because one lender rejects you doesn’t mean you should stop looking. Another may have different eligibility criteria that fit your situation better. Look into non-bank lenders or credit unions. They may have more flexible requirements.

How to Compare Lenders:

• Check interest rates, fees, and loan terms.
• Review eligibility criteria. Ensure you meet their standards.
• Ask for pre-approval. You can gauge your chances before submitting a formal application.

Seek Professional Advice

Loan applications can be overwhelmingly complex. Especially on your own. But you can rely on mortgage brokers to help you through the process. They offer personalised advice. Strengthening your application further. They can:

• Help identify suitable lenders for your financial situation.
• Negotiate better terms on your behalf.
• Simplify the application process.

Build a Stronger Financial Profile

This time, present yourself as a reliable borrower. Here’s how you can do it:

1. Stable Employment: Maintain consistent income. Do so for at least six months before applying again.
2. Reduce Expenses: Cut down on unnecessary spending. This showcases your ability to manage finances.
3. Establish a Good Track Record: Make regular payments on existing loans. This demonstrates responsibility.

Avoid Common Mistakes

Steer clear of these pitfalls. Especially when reapplying for a home loan:

• Applying Too Soon: Take time to address the issues flagged in your rejection before reapplying.
• Submitting Multiple Applications: Each credit enquiry lowers your credit score, so focus on one application at a time.
• Ignoring the Fine Print: Carefully read all loan terms to avoid surprises later.

AFMS Group: Your Trusted Mortgage Partner

A rejected loan application can feel discouraging. There’s just no other way to feel about it. But we’re here to help you strengthen your next application. Finding the right lender for your needs. Need to address credit issues? Or exploring alternative options? We’ll work closely with you to secure the home loan Sydney borrowers trust. Contact us today. Get expert advice and tailored support.