1. There are too many credit enquiry notations on your credit file.
Mortgage Lenders do not like doing work for nothing, and I guess it is only natural that borrowers want to ensure they get the best deal. The problem hits the fan when you rack up too many hits on your credit file, and alarm bells start ringing at all lenders, as they all have access to the same credit files. The result can be you get your application declined from all lenders!
Loan Application Tip: Don’t sign [or give verbal approval] to any lender to access your credit file, till you have decided which lender you will be applying with. Get your Mortgage Broker to apply for the best loan you are eligible for after he or she has properly qualified your needs.
2. Your home loan submission is poorly written.
Any innocent or deliberate errors or omissions in answering questions about your credit history and your partners, can be viewed as suspicious or even fraudulent by the lender or mortgage Insurer. Most people don’t know that what you don’t say [omissions], can at law be taken as a misrepresentation of the facts.
Loan Application Tip: Have your Mortgage Broker get your credit report for all parties to the loan before you submit your loan application. Ensure that your Mortgage Broker writes a synopsis to cover your mortgage application, explaining why the loan should proceed and ironing out any wrinkles there may be.
This extra work on the part of your Mortgage Broker can get your loan application over the line, especially where your broker is a trusted party in the home loan process with a lenders back office team.
3. Your proposed home is appraised as less than the purchase price agreed.
When a property value is appraised by the lender’s valuers as less than the purchase price, you have a problem.
Because banks only lend on Loan to Value Ratios. For instance let us say that your $400,000 home is valued at $360,000. 10% deposit is 40,000 and costs are say $8,000. Yes, you have the $48,000 required. But the bank will only lend on 90% of $360,000 [the appraised value, or $330,000. With your $40,000 deposit that makes a total of $370,000 and you are $30,000 short.
Loan Application Tip: A Mortgage Broker will give you the options you need to try to resolve this, including re-negotiating the price down with the sellers agent, getting the lenders to have the valuers re-appraise, or asking the lender to appoint a new valuer [at your cost].
Another solution may be to get a new lender who has a valuer that may be more appreciative of the value of your proposed home. Finally, you may have to find another home that values better.
4. Your Lender says you have insufficient savings, deposit or income.
Down payments and income requirements and payment capacity can vary between lenders.Also, the deposit is not all the money you need to complete a home settlement. You will have conveyance lawyer costs, property tax and other costs that might include mortgage insurance, property and mortgage stamp duty.
Loan Application Tip: Ensure that you have the funds for your costs, in addition to your down payment. Your mortgage Broker can help you with all of this.
AND/OR, find a mortgage lender who has less home loan deposit requirements, or who pays your mortgage insurance for you, OR find a lender that requires no mortgage insurance as they carry that themselves.
5. You have changed jobs, or employment status recently.
Many residential mortgage lenders, [or their mortgage insurers] view changing jobs in high unemployment times as a sign of instability that may lead to you defaulting on the loan.
The other problem is that if you are on probation for 3 to 6 months, your income cannot be assessed as proof of income till the probation period has lapsed.
Loan Application Tip: Your Mortgage Broker may find a lender who calculates your repayment ability in a more favourable way, or a lender that will take a letter from your employer that your job is secure beyond probation, and then get that letter from your employer.
If that is not possible your Mortgage Broker will find a sub-prime or low doc lender to approve your loan for you.
6. You have no savings history or irregular savings patterns.
Banks like to see stable incomes and regular savings for at least 6 months prior to the loan application. This shows you can plan for buying a home. They want to see predictable inputs and outputs, as this has proven to be valuable in having less repayment pain down the line.
That can be good for the borrower and the lender.
Many banks do not like ‘unsaved deposits’ or irregular savings from windfalls and the like. If you are self employed or have seasonal ups and downs, that can be a problem.
Loan Application Tip: Your Mortgage Broker will source your loan from lenders that allow unsaved deposits, gift deposits and parent help with collateral, and parent joint ownership options, including shared equity mortgage options.
Or your broker may use lenders that specialise in small business owners and the self employed if that is your situation.
6 a. You or your partner have a bad credit rating or history.
Bad credit is often result of breaks in income streams, because of the reasons listed in point 6 above. After all the bills don’t stop just because your income does. It might be a good idea to run a credit check to find out your credit rating and credit score before you apply for a home loan, not be told by the lender that your loan application has been declined due to a poor credit score. Many Mortgage Brokers are set up to give this service, or you can apply for a credit report from the major credit reporting agencies
Loan Application Tip: If you or your partner have a poor credit history your Mortgage Broker will have already performed a credit check, and may use a nonconforming lender, that lends to borrowers with past credit issues, usually at a higher interest rate, at least for the first one to three years. Some non conforming loans are good deals!
7. The home of your dreams is undesirable in the eyes of the Mortgage Lender.
We have talked about a poor appraisal coming back, and the home being under valuation. But lenders may also have policies on the type of property they require to be pledged as mortgage security. Problems can occur with unacceptable postcodes, residential property deemed rural, rural property over 5 acres, 10 acres or 25 acres.
Loan Application Tip: Residential mortgage loans cannot be used for working farms for instance. The smaller acreages would not be viable as a working farm, and therefore may be considered as “residential rural”.
Also ‘dual key apartments’, and “ultra low area” housing units may also be unacceptable to your lender. The central policy theme in rejecting these types of security is that the property resale may take longer than the specified time to resale [usually 3 months], should the lender need to exercise a mortgagee in possession sale.
In these cases your Mortgage Broker will assist you to find niche lenders that are comfortable with these types of security, or you may need to find a property that is more in demand that the type you have selected.
Mortgage Brokerage is normally a fee free service to the borrower. So using a Mortgage Broker to help you get your home loan approved quicker and easier makes sense. Mortgage Brokers can also save you from making these eight common loan application mistakes when applying for a mortgage loan. Whilst having your loan application declined may be overcome, and you can get a great home loan without using a Mortgage Broker, why deal with the stress and bother when a Mortgage Professional can take care of everything for you and do things right in the first instance?