Getting knocked back hurts. Here is what lenders are really looking for.
A declined home loan application can feel deflating, but it does not have to be the end of the road. Australian lenders assess dozens of factors before they approve a home loan, and understanding what they look for puts you in a much stronger position. Here are eleven common reasons your home loan application might be knocked back, and what you can do about each one.
Your deposit
Most lenders require a deposit of at least 5% to 10% of the property value. If you are borrowing more than 80% of the purchase price, you will also need to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default. Borrowing 95% of the property value is possible, but it is treated as higher risk and requires a clean credit history and a strong employment record.
If a family member is willing to act as guarantor, you may be able to borrow up to 100% of the purchase price and avoid LMI entirely. Use our borrowing power calculator to get a sense of how much you may be able to borrow based on your income and expenses.
Credit history
Your credit file is one of the first things a lender will check. Missed payments, unpaid defaults, and too many credit enquiries can all count against you. Paid defaults are treated more favourably than unpaid ones, and the age, number, and total value of any defaults will affect how a lender views your application.
One thing many borrowers overlook: applying with multiple lenders in a short period leaves a trail of credit enquiries on your file. More than one or two enquiries in six months can make lenders nervous. A mortgage broker can help you identify the right lender upfront, so your credit file does not get marked up unnecessarily before you formally apply.
Your employment
Lenders need proof of income before they can approve a loan. This is a legal requirement under the National Consumer Credit Protection Act 2009. If you cannot document your income source, your application will not proceed regardless of other factors.
Being new to a job can also be a hurdle. Most lenders want at least six to twelve months in your current role before they will lend at 80% of the property value. Some take a more flexible approach, particularly if you have moved within the same industry. If you are self-employed, most lenders want two full years of business tax returns, though a small number will consider one year of stable, well-documented trading history.
Age factors
Lenders cannot legally discriminate based on age under the Age Discrimination Act. However, if you are over 45, some lenders will ask for an exit strategy for repaying the home loan before you reach retirement age. Common approaches include downsizing your property, selling investment assets, drawing on superannuation income, or making lump sum super repayments. Not every lender requires the same approach, so it is worth speaking to a broker.
At the other end of the scale, being aged 18 to 23 can work against you simply because you have limited credit history. This is rarely a deal-breaker on its own, but it is worth being aware of when you first apply.
The property itself
The type of property you want to buy matters as much as your financial position. Lenders need confidence they could sell the property if you defaulted on your repayments. Properties that attract extra scrutiny include inner-city apartments with high investor concentrations, homes in remote or flood-prone areas, island or water-access-only properties, and homes in restricted postcodes.
Highly unique or unconventional properties can also be difficult to finance because their resale market is limited. If you have your heart set on a non-standard property, a broker can often find a lender whose policy suits your situation. When working out your total purchase costs, our stamp duty calculator can help you plan ahead for upfront costs in your state.
Spending habits
Your bank statements tell a story. Lenders examine your transaction history to assess whether your day-to-day spending is consistent with someone who can comfortably manage home loan repayments. Consistent discretionary spending that leaves little room for savings or repayments is a red flag.
In the months before you apply, be mindful of your spending. Reduce unnecessary subscriptions, avoid large unexplained cash withdrawals, and build a consistent savings pattern. A clean three to six months of bank statements can make a real difference to how a lender views your home loan application. For a broader picture of the home loan process in Australia, read our complete Australian home loans guide.
Common questions
Q: Can I still get a home loan after being declined before?
Yes. A decline from one lender does not mean every lender will say no. Lenders have different policies, and a mortgage broker can help you identify which ones are most likely to approve your application based on your specific circumstances.
Q: How long should I wait before reapplying after a home loan declined decision?
It depends on the reason. If your application was knocked back due to credit issues, give yourself time to resolve defaults or reduce enquiries. If the issue was deposit size or income, focus on improving those areas first. Reapplying too quickly without addressing the root cause can make things worse.
Q: Does a declined application affect my credit score?
The credit enquiry from your application stays on your file whether the loan was approved or declined. Multiple applications in a short period can compound the problem, so it is better to understand why you were declined before approaching another lender.