8 Reasons Your Home Loan was Declined

By Angela Monroe - December 11, 2018

Having a home loan declined can be really disappointing, whether it’s your first apartment or a forever family home. Understanding the reasons why your home loan may have been declined is the first step in figuring out how to change the situation around.

At Loans for People With Bad Credit, we believe that everyone deserves the chance to get the home loan that they want. Whatever your credit rating, we’ll work with you to help you to understand the question of ‘why was my home loan rejected’?

Top 8 reasons why home loans are rejected:

  • Issues with your credit score

Do you know what your credit score is? If not, it’s free and easy to find out by requesting a copy of your credit report– it’s worth doing as first step to understanding why your home loan may have been rejected.

If your credit score is low it may be due to defaults on your credit file. Defaults can be seen as black marks which raise alarm bells to a lender as they question your ability to pay back a loan. Check whether you have defaults such as missed repayments or previous experience of bankruptcy.

  • Lack of deposit

It’s worth understanding the concept of a loan to valuation ratio when it comes to the deposit you may need to get home loans approved.

An LVR is the maximum amount you’ll be able to borrow, the rest will have to be made up of a deposit. If you can’t show evidence that you can provide a deposit, it’s likely that your home loan application may be rejected by the lender.

  • Minimal Savings

So you’re applying for a home loan but you have minimal or no savings? This may have been the reason that your home loan was declined.

Lenders will almost always want to see some evidence that you have savings – usually by showing them recent bank statements. This often causes issues if you have money that has been gifted to you to put towards your new home.

  • Going over your budget

It can be tempting if you’ve seen your dream house to go ahead and apply for a home loan, but don’t forget your budget. It’s likely that your home loan application will be declined if you have a low income yet still apply for a home loan for an expensive property.

Your lender will view you as a high risk borrower in this circumstance and even if your home loan isn’t declined, you’re likely to face very high interest rates and fees.

  • Lack of documentation

Whether it’s a matter of organisation or simply your circumstances not allowing you to provide the right documentation, this can often be a sticking point for lenders.

Failing to provide documentation that is asked of you as a criteria for taking out the loan will mean that your home loan application is declined. If you’re self employed or don’t have the ability to show your tax returns, finding the right lender may change things for you – ask Loans for People With Bad Credit to help you.

  • Property Valuation

It’s in the lenders interest to find out exactly how much the property you’re looking to buy is valued at, so they’ll have it professionally valued by experts who work for them.

If the property is found to overpriced, the lender may decline your home loan as they’ll be reluctant to lend you more money than the property may be worth. Ultimately, you should see this as a positive as it may have allowed you to avoid issues further down the line.

  • Poor debt to income ratio

You’ll be required to provide your lender with full details about any debts that you currently have. They’ll then measure this against the income that you earn (with proof shown through your payslips or bank account).

Lenders will assess whether you will be able to pay back the home loan that you are applying for and if they doubt your ability to make repayments on time and in full they may decline your application.

  • Lending Specifications

It’s up to the individual lenders to decide whether to decline or accept home loans. Often it’s simply bad luck as a lender may not offer finance for properties that are very small or that are from a certain time period.

Finding the right lender should help to avoid these issues so make sure you ask Loans for People With Bad Credit to help you by offering instant access to lenders who specialise in working with people with bad credit.

Moving forwards

Having a home loan rejected can feel like the end of the road. Don’t give up though. It’s really useful to get pre approval for your next loan application so you know exactly how much you may be able to borrow and can tailor your applications appropriately.

Always ask for expert help – Loans for People With Bad Credit have years of experience and access to lenders who specifically work with people with bad credit so contact us today to move forwards with your home loan.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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