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What To Do If Your Home Loan Is Denied?
158 Plays2 months ago
A $10 bet, a missed payment, or the wrong property choice—any of these could derail your dream of homeownership in 2025! In this episode of Buying Your First Home, we uncover the hidden traps that could slash your borrowing power, from lender blacklists on certain apartments to how your spending habits (yes, even small gambling transactions) can raise red flags. Plus, we break down how relationship status, credit card limits, and even private health insurance can impact your loan approval—so you can avoid surprises and secure your dream home with confidence.
Need help navigating the home buying journey? Get a free pre-approval and explore your options with Hunter Galloway – a trusted mortgage broker for homebuyers across Australia. Call 1300 088 065 or visit huntergalloway.com.au
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Transcript
Introduction to Homeownership Challenges
00:00:01
Speaker
Did you know a mispayment, a $10 bet or buying the wrong type of property could completely cost you a dream home in 2025? That's right, some lenders are making the rules even tougher and a small mistake could mean big trouble when it comes to your loan application. Today, I'm going to show you how to avoid these hidden traps and keep your dreams of homeownership alive.
Navigating the Australian Housing Market
00:00:19
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
Risks of Buying Units
00:00:44
Speaker
buying a unit. With the housing affordability crunch, more and more first home buyers are looking at units as their first step onto the property ladder. But did you know more and more lenders are scrutinizing unit buyers in certain areas? You might think that buying a city apartment in a central location with heaps of amenities and future rental potential is a great idea. But here's the catch. A lot of lenders, including the major banks, see inner city apartments as a high risk.
00:01:06
Speaker
Why is that? It comes down to oversupply, market volatility and specific traits that make these investments for some banks less appealing. It even has to do with concentration. Some of the banks have specific lenders and if they've lent to too many people in that particular building, they're going to want you to put in a 30% deposit or some lenders will just blacklist a building altogether. On my other point though, with oversupply, this can be a real problem because it can be the case where cities are overpacked with similar apartments and if a bunch of them hit the market at the same time, it presents a risk to the banks. This can drag down prices and in a worst case scenario, make it harder for the
Lender Concerns for Small Properties
00:01:37
Speaker
bank to sell. Lenders also shy away from properties under a certain size. With the majority banks, it's under 50 square meters. There are some that will consider under 40 square meters, but if you're looking at a smaller apartment or even a studio, you may need to think about getting a bigger deposit.
00:01:51
Speaker
And here's a real good example. One of our clients was buying a small apartment in in the inner-city Brisbane CBD. They had everything lined up, deposit, pre-approval were good to go until they signed the contract and we found that that lender actually blacklists that particular building. He said there was some short-term accommodation in that building and the bank considered it almost like a hotel. Even though it was our client's intention to live in there and not rent it out, it presented a big issue with this particular bank. Fortunately, we had other banks on the panel who don't see it the same way.
00:02:15
Speaker
That same day, we found another bank that was fine with that apartment, and under the home guarantee scheme, allowed a 5% deposit. So the takeaway here is do your homework before you commit to a particular property. Have a chat to your broker because the location, the size, and even the type of unit could cause issues with your bank. We've even seen this with body corporate and strata costs. So have a chat to your broker. A few banks have relaxed a little bit on the body corporate and strata cost over the last few months, but if it's costing 10, $15,000 a year in cost, remember, that's gonna come out of your pocket week to week, gambling transactions.
00:02:45
Speaker
Now that you know how the wrong type of property can derail your home loan, let's talk about a surprising risk.
Impact of Personal Habits on Borrowing
00:02:50
Speaker
Your spending habits. Even small, seemingly harmless behaviors can cause red flags for lenders, and one of the biggest culprits of that is gambling. You might have had a bit of a bet for Melbourne Cup, a bit of a flutter in the pokies, and it might seem harmless to you, but lenders see it a little bit differently.
00:03:03
Speaker
Although gambling could be considered recreational or discretionary spending, they see it as potentially a recurring expense. So if you have a one-off punt at Melbourne c Cup, it's okay. But if every month you're spending $50, $100, $200 on sports bet or different gambling platforms, the bank's actually going to consider that as almost like an ongoing liability and it's going to reduce your borrowing capacity. We got approached by a client a couple of years ago who learned this the hard way.
00:03:26
Speaker
On paper, he had impeccable financials, had great income, good savings and no major debts. But every Friday, he'd go to the ATM near the Brisbane Casino here and take out $200. Now, he said he was using this for shopping, but the bank saw this as a $200 cash withdrawal from the casino every Friday night. They saw this as an ongoing liability and actually reduced his borrowing capacity by $30,000 to $40,000.
00:03:48
Speaker
But all wasn't lost. He was looking at buying a home in the next six months. So he decided to clean up his act, stop those ATM withdrawals and have clean records. We went back to the bank six months later, said, hey, this is all been cleaned up. It's not an ongoing liability. It was one off. It's not going to happen again. And they were fine to reconsider the overall scenario.
00:04:04
Speaker
I think the important lesson here is lenders do scrutinize your behavior within reason. Like if you're going out, you're buying an extra pair of shoes, it's going to be okay. That stuff can be explained. But if it's gambling, the banks do take a bit of issue with this. De facto relationships. Here's another fact that catch a lot of people off. It's your relationship status.
Relationships and Financial Implications
00:04:20
Speaker
Sharing your life with a partner is an awesome thing, but when it comes to loans, it gets a little bit more complicated. Lenders don't just look at your financial situation, they look at your overall obligations. And if you declare that you've got a de facto partner, they assume that that de facto person is financially dependent on your income. It gets tricky because you might be just applying just as me as a single person. I say I've got a partner here, I've got a girlfriend for a couple of months. But if you say you're de facto, the bank will consider that as two full grown adults that are having to live off my salary. This can completely shred your borrowing capacity. You could lose hundreds of thousands of dollars if they consider this. Now, it gets really tricky because in Australia, the de facto is a partner that you're potentially living with six months, you might just start dating someone and call them the partner and it does get tricky. There's a couple of different ways to approach this. If you've started dating, you don't have any joint accounts together, your finances are completely separate and you're considered completely financially independent, you live separately, you could be considered single for finance purposes.
00:05:12
Speaker
But if you do have joint accounts, you share the lease together, but you might be looking at buying the property just in your name only. The banks could still consider you as de facto and reduce your borrowing capacity. There's a couple of ways to work around this. A few banks will consider your partner's income, or they'll look at it and say, well, Jaden's applying on his own. Jaden has a partner who is earning $70,000 a year. Show me the partner's payslips. Although they won't be on the loan application at all, we know that that partner is earning 70 grand.
00:05:37
Speaker
They're not dependent on Jayden's income and you can still get a loan just based on Jayden's income as a single person looking after just himself to buy a place. A few banks do this. It's called common debt reducer. It's a way to help navigate the situation because it's pretty common and it can be tricky. You might be want to buy an investment in your name, not involving your partner. You could have only been going out for six months of all like you're not ready to buy a house yet and that's completely fine. Have a chat to your broker. um We've definitely got a lot of solutions and we've seen this a lot in the past. Financial factors that reduce your borrowing capacity.
Financial Obligations Affecting Borrowing Capacity
00:06:03
Speaker
Yeah, so as I mentioned, getting a home loan isn't just about your income. It can matter about your partner, your spending habits, and even some of your ongoing monthly expenses. Let's deep dive into this so you can understand how these different expenses affect things. Health insurance. Private health insurance is a safety net. It's also sometimes a requirement once your income gets to a certain point, but did you know it actually can impact your borrowing capacity pretty substantially?
00:06:26
Speaker
Yeah, that's right. Even a modest premium of $200 a month can reduce your borrowing capacity by 40 to $50,000. The reason is the banks will take this expense outside of your minimum living expense. So for everyone, they have a minimum living expense that they calculate as your ongoing expenses. If you're on say $100,000, your minimum living expense might be around $2,000 a month. If you have private health, that's $200 a month, they'll increase your monthly living expenses to 2,200. That will reduce the income left over at the end of the month, make your loan repayments and how much they'll lend to you. Now, it's not to say to go out and cancel your private health straight away before you get home, have a tattoo broker. I had a recent situation where a client was applying, he had kids that were turning 18, his private health was over $400 a month, and it was reduced in the borrowing capacity by $56,000. We found a lender that would actually include private health in his normal living expenses. We explained how it all set up. He was actually living pretty frugally, so his living expenses were below what most other people's was. And we were able to get the loan approved for a higher loan amount, which is what he wanted, without having to cancel private health.
00:07:25
Speaker
So now that you know how insurance can quietly affect your loan, let's have a look at another one that makes a big impact, HEX or help debt. HEX is one of those things that feels out of sight until the government indexes it or it's tax time, but it definitely can make a big difference with your borrowing capacity. Interestingly, it's not how much you owe, but it's actually your income.
00:07:41
Speaker
If you're earning $75,000 a year, your annual extra payment is around $2,625 and it could reduce your borrowing capacity by $28,000. But if your income gets bumped up to $150,000, your annual repayment for HEX goes to almost $14,500 and it cuts your borrowing capacity by as much as $130,000. So should you rush off to go pay off your HEX debt? Well, it's not actually that simple.
00:08:05
Speaker
If you're looking at a high price property, if you're looking at investment, it could be worth considering paying off, but chat with your broker to workshop it. If you get an extra $150,000 in borrowing capacity, but it costs you $150,000 to pay off your hex, it may not be worth it. But by the same token, if you only owe 2,000 or 3,000 on your hex, and it's going to increase your capacity, it could make sense. We cover this with all our clients as part of the first step in an information session to understand what the layer land is, what could be preventing or slowing you down from getting to the home of your dreams. If you want to help with that, hit us up at huntergalloway.com.au. We'd love to help out.
Importance of Genuine Savings
00:08:34
Speaker
Now let's look at at another fact that seems pretty straightforward, but often trips up people is genuine savings. Most lenders aren't just looking to have a 5% deposit in the account, they want to see a bit of a pattern of financial discipline. Genuine savings shows that you've consistently set aside your savings for the last three months and built up a bit of a savings buffer.
00:08:50
Speaker
And this is where it gets tricky. Not all savings count as genuine. If you just got given 50 grand from your parents, you might have got an inheritance, that doesn't consider as genuine. Some banks will want that to sit in your account for three months. There's a couple of different workarounds on here. If your parents gave you 50 grand yesterday, you're going to buy a place, but you don't have the genuine savings, a way around is showing the bank your rental edger.
00:09:08
Speaker
Some of them will look at your rental ledger and say, well, while Jayden wasn't able to save up a deposit, his parents gift him the money, he has been paying his rent consistently for the last six months, which would have been the same if he hadn't paid rent as a deposit. So we'll tick that off. The genuine savings yeah it didn't get met, but we have the rental ledger to do that in lieu of, and that's fine to go.
00:09:25
Speaker
There are some other banks that will consider non-genuine savings, even you if a 5% deposit. Again, a broker will help you navigate this and make sure your loan doesn't get declined for this silly reason. Too much debt. Debt is one of the biggest borrowing capacity killers. Whether it's personal loans, buy now, pay it later, or even unused credit limits, all debt can affect your debt to income limits or your DTI. A couple of help recently had three credit card limits of $50,000, but they barely touched them. They couldn't believe that those credit card limits were reducing their capacity by $150,000.
00:09:53
Speaker
They kept asking, well, I don't even use it. I clear it every month. Why does the bank care? Well, they look at the $50,000 limit and say, well, potentially you could draw that money out, go to the casino and do whatever you want and then take years and years to pay it off. We need to factor in the repayments looking at if you potentially did drop that 50 grand, even though you don't actually use it.
00:10:10
Speaker
We were able to get the pre-approval done for them saying, well, the bank will lend you up to this much. You just need to reduce your credit card limit to 20 grand when you eventually find the right home. Another thing that trips people up is bad credit history. Your credit history is you find your resume for lenders.
Credit History and Loan Applications
00:10:22
Speaker
It reflects how reliable you've been in repayments in the past. Mispayments, defaults, multiple credit inquiries can make you appear risky, even though he finds it as strong now. He has approached by someone recently that had a history of late utility bills. They forgot about a few years ago, and when we went to go check her credit report, she had a $150 default owing to Origin Energy. This was a complete showstopper for the bank, because if it shows up as an unpaid default, they won't even consider your loan application. She had to contact Origin, pay the $150, which seemed like a silly thing, but still could have derailed the her own application. Then we did an explainer, told the bank, well, she moved overseas, she went traveling. This is why it wasn't paid, and they were fine with approving the loan.
00:10:57
Speaker
If you haven't checked your credit history, have a look. There's a bunch of free online reports that you can get to see what your credit score is. Pretty much anything over 600, 650 is a pass score. You don't get better rates or anything if it's better than that. Reject after pre-approval. So you might have jumped through all these hoops, got your pre-approval and thought, I'm good to go.
Employment Changes and Loan Terms
00:11:13
Speaker
I'm ready to buy a house. And a pre-approval is an important part of the process today, especially when we're in a really hot market. But just remember, pre-approval isn't a promise. It's not a guarantee. It's a conditional yes with plenty of terms and conditions.
00:11:24
Speaker
Here are a few mistakes I see made when people get a pre-approval thinking all's good. Firstly, job changes. You might get a pre-approval today. The bank approves you saying, yeah, we're happy with you working at O McDonald's. That's all fine. But then in a month's time, if you change to Hungry Jack's, get a new job, the bank is going have to reassess your pre-approval even though they did it last month. You see, the thing is, you might get your pre-approval today. When you go to your formal approval in a month's time, they're going to want updated payslips and information. If they see your jobs change, they see the type of works change. You might have gone from permanent full-time to casual.
00:11:54
Speaker
it could completely derail your home loan process. That being said though, you might have a pre-approval, get approved, move into the house, and then if you start a new job the next day, that's entirely your choice. The bank is based in their assessment at the time you apply for the formal approval, and they give you a loan over 30 years. They know that things might change in the future. You might have kids, you might go traveling. As long as you keep making your re loan repayments, they're pretty happy. Take your new debt.
Impact of New Debt on Loans
00:12:16
Speaker
Taking your new debt during the loan process can be a huge issue. I've seen this a lot lately with car leases. It's obviously really appealing. There's different nobody lease companies and you can get some pretty good deals on EVs. But here's the thing, the bank will look at the financial lease component of that lease and factor the energy borrowing capacity.
00:12:34
Speaker
Although it might be a much better deal for you after tax, the bank's still going to factor in that $1,000 lease a month, which is the same as a $250,000 mortgage and affects your borrowing capacity just as much. Have a chat to your broker during that process to make sure it's not going to derail any plans and work ahead, see if you can push back those plans just to get into the house and go from there.
00:12:52
Speaker
The last one I see sometimes is misrepayments, especially if you're getting a pre-approval with the same bank your day-to-day accounts with. I got contacted by someone actually just yesterday. She had bank with her same bank for the last 30 years, had saved up the deposit, was applying for a pre-approval. Everything was going really good until it didn't. She said the bank set out of the blue. She was rejected. What had happened was a direct debit was coming out from one of her accounts that she forgot to put enough money in. So every month her account was overdrawing by $20. $20 it overdraw for a day. She'd fix it up. $20 is overdraw and fixed up. But seeing their system, the bank saw her as a bit of a risk, saying, well, she's constantly missing her payments. This account's always overdrawing. We think she's a risk. We don't want to
Working with Experienced Brokers
00:13:29
Speaker
lend to her. And this is where you need to be careful, especially when you're applying for a loan. Banks sometimes don't really look at the full picture. They didn't realize that she had her $30,000 saving in another account. She had the money there. It was just a bit of a mistake with her management. So misrepayments can make a big issue, even if it's a small amount. So keep that in mind, make sure you stay on top of your account and potentially consolidate. If you've got accounts here, there and everywhere, try and get it down to just a handful of banks to make sure you're across everything.
00:13:54
Speaker
Oh yeah, I feel like we covered a lot today, but as you can see, there's a lot of things that can go wrong when you're applying for a home loan. You want to work with a broker that has lots of experience, lots of good reviews, and can help you get through the home loan process and into your home. At Hunter Galloway, we help people all around Australia. We specialize in the home guarantee scheme, so if you've got a 5% deposit, your single parent we would love to help out, or if he's looking at something bigger like upgrading, hit us up.
00:14:17
Speaker
2025 could be your year to jump into a new home. We'd love to help out. Like I said, hit us up at hunscalloway.com.au and until next time, I'll see you guys.