Purchasing a home is a significant financial commitment that, for most of us, requires borrowing a significant portion of the property value. However, securing a home loan can be challenging for some home buyers. They may research different property and mortgage options before settling on one only to be declined by the bank. If this happens, you shouldn’t lose hope straight away. In many circumstances, a mortgage broker can turn things around for you.
This is because experienced mortgage brokers have a deep understanding of the different home loan options and how they suit different applicants. They also have the strong negotiation skills required to help the applicant get approved. If you’re uncertain about your financial situation when it comes to loan approval or feel as though the banks are treating you unfairly, you should consider seeing your local mortgage broker.
Why Do Banks Turn Down Mortgage Applications?
Lenders can decline a home loan application for a wide range of reasons based on their own criteria. Most of the time it’s because of:
- Insufficient income – A lender will often reject an applicant if they feel your income is not sufficient to meet lifestyle costs and mortgage repayments should interest rate rises.
- Insufficient deposit – A 10 per cent deposit is needed to make a purchase for first home buyers. Standard owner-occupied home purchases require a 20 per cent deposit while investments require a 30 per cent deposit. If you can’t meet the deposit requirements, it’s likely you’ll be turned down.
- Bad credit history – Banks can quickly find out if you have a history of not paying back debt, e.g. credit card debt, utility bills, Afterpay. If they find you have a history of paying the debt back late or not at all, there’s a good chance the application will be rejected.
- Any signs of instability – Any unsteady or irregular income, e.g. if you’re newly self-employed or recently left a job can result in your home loan application being rejected.
- Unacceptable property – Banks are cautious and minimise their risk wherever possible. As a result, they can reject a home loan application if they feel the property is too high risk. For example, if they consider it to be too run down, poorly built or located in a bad area or leaky building.
How Can a Mortgage Broker Help?
If a bank rejects your mortgage application, a broker can potentially help you get approved. They factor in any individual circumstances, which may present a challenge in securing a loan, and find a way of getting around it. For example, if you’re unable to meet minimum deposit requirements with your own savings, a broker can help you find ways around it like using existing equity in a property owned by parents or gifting in order to meet the amount.
If you were declared bankrupt or have been self-employed for less than 12 months, a mortgage broker can help you prepare additional documentation to improve your chances of securing a home loan. For example, self-employed home buyers are more likely to get a home loan approved if they provide additional information such as cash flow projections to prove they are financially secure enough to service the loan.
Benefits of Using a Broker
A mortgage broker acts independently of banks and other financial institutions, meaning their first priority is finding what works best for you. A broker’s experience and understanding of mortgages, legislation and relevant market forces gives them the knowledge to find a suitable home loan for varying individual circumstances.
Brokers play an important role in the property market by liaising with lenders and mortgage applicants to ensure the process goes smoothly for everyone involved. They also offer convenience and security to the lender by overseeing the process while benefiting the applicant by minimising stress, offering better response times and a better deal overall.
Contact Mortgage Masters – Independent Brokers in Auckland
Mortgage Masters are your independent mortgage brokers in Auckland, servicing the community in home loans since 1998 to find our clients the best deal on the market. If you need tailored financial advice or helping finding the right home loan for your needs, please get in touch with our team today.