Why banks reject finance

May 27, 2015

Why banks reject finance

The rate cuts Australia’s currently experiencing are having a huge effect on what people are able to borrow. It’s especially good for first homebuyers and investors who may be able to buy properties now that they couldn’t afford six months ago with higher interest rates.

crawfordBY RYAN CRAWFORD

However, just because you can borrow more doesn’t necessarily mean the bank will approve your loan application.

There are many reasons your loan may be refused. A lender may turn down a loan application even if the financial side of the loan stacks up.

Here are the main reasons I see loans being refused and my tips on improving your chances of being accepted:

* You have credit report defaults or a low credit score
Missed or late bills and repayments will show on your credit file and these can adversely affect your chances of getting a home loan. Ensure your bills are paid on time and resolve past disputes quickly. You can also check your credit file using services such as Veda Advantage.

* The lender may believe you won’t be able to afford repayments based on your financials
Lenders examine your income, living expenses, and other financial commitments to evaluate how much they think you can afford to borrow. Work out how much you think you can afford and create a budget to see how much of your income is available to meet home loan repayments. There are some great tools and calculators online to assist with this.

* You don’t have adequate savings in your bank accounts
You might have your deposit covered as well as enough income to meet your monthly repayments, but the lender might still say no based on your savings history. Demonstrate to the lender that you’re capable of managing your finances and meeting commitments with a savings plan.

* You don’t have an adequate deposit or equity
Lenders have minimum deposit requirements and depending on the property and application you may be required to have more. Ask your lender what size deposit they’re looking for before you apply for the loan. This will help with your savings and identify the type and cost of property you can afford.

* The property itself, for various reasons, is deemed too high-risk
Property criteria can affect your application, such as the area the property is located (for example, some banks won’t lend in certain regional areas) or small building size apartments. Check with your lender that the property you’re interested in is acceptable for a loan.

The bottom line is, when applying for a loan you need to have all your financial information up to date. Apply once you’re prepared and be clear about your investment goals and projections for the next three to five years. Show the lender that you’ve given a lot of thought to purchasing your next investment property and how you intend to manage it.

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Filed under Australian Bureau of Statistics ABS Building Approvals February January, LJ Gilland Real Estate Pty Ltd, ljgrealestate, renovating construction maintenance investment property rentals sales tenants

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