Last updated on 22nd July 2019

Good deposit and steady income? Don’t assume you’re approved: 6 Surprising reasons banks reject home loans

Good deposit and steady income? Aussie banks are diving much deeper into your spending habits.

Aussie banks are diving much deeper into your spending habits.

If you’re finally ready to take the plunge and buy a property, or refinance an existing home loan, nothing puts a damper on the excitement like a big, fat rejection.

And while some reasons for rejection are no brainers, like having an unstable income or starting at a new job, others are downright bizarre. Did you know a rejection can come down to your eating habits and other regular spending patterns? It pays to know what lenders are looking for, but also what turns them off.

Before we delve into the 6 not-so-obvious red flags to avoid, start off on the right foot by ensuring you’re getting the best value home loan for your needs. We find so many Aussies have more potential to save, and the ability to access better-suited loans for their needs.

And we get it—the process of shopping around for a home loan can be overwhelming and time-consuming to say the least, but Home Loans Australia makes it easy—simply fill out a few details below and our qualified advisers will get started on comparing home loans for you, from more than 27 leading Australian lenders, to find you the right home loan at the best possible price. And better yet, our comparison service is free of charge.

Compare Now:

Step 1: Select your State below.
Step 2: After answering a few questions, you will have the opportunity to compare competitive rates and could be eligible for significant savings.

Keep in mind that home loans can vary significantly from lender to lender. Apart from differences in interest rates, there are variations in how they’re structured (e.g. fixed and variable), how flexible their terms are and more.

Here at Home Loans Australia, we know what lenders like, and what they consider a red flag. We’ll explain our recommendation to you in simple terms so you understand everything and most importantly, you’re well informed to make the best decision for you.

Even if you receive a great income and have saved up a solid deposit, there are a few unexpected factors that could deny you of a loan.

Here are 6 of them:

  1. You order UberEats, shop with Afterpay and watch Netflix

    Not only do banks look at your finances, but they’re interested in your lifestyle, too.

    The Australian Financial Review reported two cases where first-time home buyers were declined a home loan because they spent too much money on discretionary expenses including UberEats, Uber Ride, Netflix and Afterpay. Lenders want to know whether your lifestyle is practical enough to maintain the financial pressures of a mortgage. Even if you appear to have enough money upfront, lenders may look for recurring transactions to get a good understanding of your spending habits.

    If you love to ‘shop now, pay later’… Or spend a lot of money on things that you really don’t need (like expensive clothes, indulgent takeaway dinners and holidays) this could be a red flag for lenders and ultimately lead to rejection.

  2. You forgot about your memberships

    Gym membership fees and pet insurance may seem necessary, and media subscriptions such as Netflix and Spotify harmless, but to banks—not so much.

    Money automatically comes out of our account to pay for these memberships on a regular basis, making it easy to forget about them. Be sure to outline all of your expenses to your potential lenders to prove you’re on top of your finances and not hiding anything.

  3. Your dream home is not so dreamy in the eyes of your lender

    Particular postcodes, high-rise developments, small studio apartments, houses located near power lines or overly rundown properties are seen by lenders as risky.

    Even if you can afford to pay off the mortgage, the banks can reject a home loan based purely on the property you’re looking at. That is—if they don’t think your dream home is that crash hot.

    Their reasoning is: if you default on your repayments, the property is then the lender’s responsibility. If the property’s value dramatically decreases or simply fails to sell, the lender will lose money.

  4. You have no proof of saving and no credit history (or not enough)

    Your ability to save is another major plus when it comes to applying for a home loan.

    Show the banks your saving skills by highlighting a shift on your spending habits. A key rule of thumb is to go back to basics and only buy the essentials. (FYI: Uber Eats is not an essential, grocery shopping is).

    Lenders also look at your credit history to assess how responsible you are with your money. No credit history is better than a bad one, right? Well, no.

    Choosing not to have a credit card is a safe option for people who want to avoid overspending, however the banks want to see that you’re capable of meeting payment deadlines.

    While it’s important to be money wise, it could also be a good idea to have one or two credit histories to show you are capable of the pressures that come with paying off a home loan.

  5. You just picked out a shiny new set of wheels

    If you’ve just taken out a car loan or leased a new car, you could struggle to get a home loan. Car payments add extra burn to your monthly expenses and will increase your debt-to-income ratio.

    Lenders calculate your monthly debt payments divided by your gross monthly income. This number is your debt-to-income ratio, or DTI ratio.

    When you add a home loan on top of an already existing car loan, your DTI ratio will increase.

    The higher the DTI ratio, the more likely you’re to have troubles meeting monthly payments.

    The maximum DTI ratio will vary between lenders, so make sure you compare with Home Loans Australia to get the best lender for you.

  6. You inherited money for a deposit

    It’s not all about the money you have, but how you got it.

    The most important factor lenders are looking for is your ability to save. If you inherited a hefty sum, your parents helped you out with a deposit or you had an epic win at the casino—don’t assume instant approval. Banks are looking at the full picture, and they need to know you’re capable of making repayments on time over the course of your loan—not just in the early days.

These are just a factors lenders look out for, so if you’re surprised by any of them, or simply don’t want to miss out on that dream home, contact us by filling out the form below. We’ll help you prepare for success by answering all of your home loan questions, clarifying tricky terms and jargon, providing quotes based on your needs, goals and budget—and ultimately, making that dream home yours.

Here at Home Loans Australia, we’ll be there every step of the way to guide you through the paperwork, negotiations, and terms. Compare with us today to avoid any surprising rejections.

This article is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.

1 https://www.afr.com/real-estate/uber-eats-afterpay-and-netflix-accounts-could-hurt-your-home-loan-application-20181128-h18ghz

2 https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-why-is-the-43-debt-to-income-ratio-important-en-1791/