What to do if you get turned down for a home loan
Have you applied for a home loan lately? If not you might be in for a shock.
A lot has changed in the past few years and for people who are upgrading or refinancing to access some equity to renovate or invest, it can come as a surprise.
Not only has the amount that the bank will lend you possibly decreased but the questions you are now asked are a lot more extensive and can often feel a bit invasive.
How well will you stack up in the eyes of the banks?
Here are the top 10 boxes that banks want to tick when you apply for a home loan.
1. Do you earn your income in the traditional 9 - 5 way?
2. Is your loan for the home you live in?
3. Do you owe less than 80% of the value of the property?
4. Are you aged 50 years or less?
5. Have you lived at the same address and had the same job for quite a few years?
6. Is your property a unit or a standard house on a block, in a metro or large regional location?
7. Have you not applied for much credit in the past few years (like credit cards, car loans, personal loans, interest free facilities etc)?
8. Have you not had any hiccups in any facility held with the bank (never been over limit or overdue on any savings account, credit card or personal loan even if there was a valid reason)?
9. Have you not suffered any issues like job loss, illness or divorce that has caused you financial difficulties?
10. Do you have a clear credit history?
If you can tick yes to all of these, you are in demand and are in a strong negotiating position with most lenders. If you threaten to leave, they will most likely offer you reductions in interest rates and fees in order to retain you.
If you ticked 'no' to some, you might find yourself in far less of a negotiating position.
You might be shown the door if you threaten to take your business elsewhere or, after negotiating the purchase price of a property, your application may be declined or the bank may be willing to lend you a lot less than what you need.
Turning a no into a yes
Although you can't do anything about your age or if the property you are looking to finance is an investment property, there are a number of other boxes that you could potentially turn into a "yes" over time.
You could focus on paying more than the minimum and building up your equity, resisting the urge to increase your home loan to go on an overseas holiday, being vigilant about paying bills on time and not losing track of due dates, saving up and using cash instead of constantly applying for credit.
The good news is that it is not the end of the road if you are knocked back by your lender. There are options out there, even if it may take you a few more steps to get you to where you really want to be.
1. Don't panic
Don't do anything rash like applying with a multitude of lenders hoping that one will say yes, but plan your next move very carefully.
You need to be extra careful because anything you do from here could damage your credit record and provide more reasons for lenders to say no in the future.
2. Get help
Find someone you can trust that has the knowledge and expertise to find options for you.
Ask about their track record - for example have they found options for lots of borrowers in your situation in the past and what is their track record in helping them to get back on track in the long run? Also get references.
Do they have independent reviews or borrowers you can speak to that they have helped?
3. Knowledge is power
Understand what banks are looking for and ensure that you tick all the boxes before you apply for a home loan. Instead you can blindly proceed to apply, thinking that you are the ideal borrower, when in reality any number of things can cause an application to be declined.