4 Top Reasons Why Your Home Loan May Be Declined

What Can Cause My Home Loan To Get Declined – 4 Most Common Reasons

The process of buying a home is very tedious and lengthy, especially if you need a loan as the solution to financing.

You first have to see how much you can borrow and then find a home that would fit the criteria – after all, we can’t quite borrow as much as we’d want to. On top of that, there’s also the chance for your loan to get declined.

Because of this, you should submit your loan application as early as possible so that you don’t miss the purchase of your dream house. Still, why could your home loan be declined?

Credit File Defaults

During the home loan application process, your lender will take a look at your credit report. The latter records the current loans that are in your name, any previous loan applications, as well as whether you have defaulted on a loan or failed to pay a bill on time.

Defaults and bankruptcy are considered as black marks and may count against you when applying for a home loan! We do however have alternative second tier lenders who can consider approval if you have bad credit or listed defaults.

Deposit Issues

Every home loan comes with a maximum loan-to-value ratio – LVR. The LVR is the maximum amount you can borrow and is expressed as a percentage of the property’s value.

As you may know, a deposit is also required for a home loan. For example, if you apply for a home loan which has a maximum LVR of 80%, then you will need to put down a deposit of at least 20%. Naturally, if you can’t do so and this is the requirement, your home loan will be declined.

It is also imperative you consider holding genuine savings if you are applying for a home loan with a deposit less than 20%. Not holding genuine savings may see your home loan get declined.


Under Australian law, each lender has the duty to responsibly lend money to their customers. This means that, if you are a low-income earner and want to buy an expensive property via a loan, the chances for your application to get declined are quite big.

Basically, if the lender determines that you will not be able to make regular loan repayments – now and in the future – they will decline your home loan application. The lender will need information regarding your income, as well as your debts. They will use this information to see how much of your monthly income you use to pay off your debts.

If too much of your income is used for previous debt, then they will deem you as unable to afford mortgage repayments.

The Valuation

Home loans will not be approved until and unless the property that one wishes to purchase is professionally valued.

The lender wants to make sure that they will be able to recoup their losses in case you default, and the property has to be sold. You may be willing to pay more for your dream house, but a lender will definitely not take any risks.

The valuation will need to be within the LVR guidelines and if it is a purchase, the valuation will need to match the Contract of Sale. Unless you have the funds to cover the shortfall, the lender may decline your application should the valuation not match the LVR or contract of sale.

Here at Highline Lending, we have access to ordering complimentary upfront valuations prior to starting a loan application and prior to clients committing to a property purchase, this ensures the valuation doesn’t have the loan declined and also helps us structure your finances.

The Bottom Line

As you can see, there are a lot of reasons why your home loan may be declined. In fact, you can be faced with such a decision even if you fail to provide your lender with enough documentation.

Therefore, applying for a home loan and ultimately buying a house is not as easy as it may seem.  To overcome or prevent any issues that may get your home loan declined, you can always contact us and have one of our experienced mortgage brokers help you.

We will guide you through the entire process of finding a loan and help you find the one that fits your needs! Just reach out and contact us today for questions or more information! Contact us on on 02 9121 6247 or submit your scenario online. 

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Whether you’re a first home buyer looking at entering the market or an existing home owner looking at ways to save money on your home loan, we have you covered. We’ve put hundreds of hours of research into these guides to ensure you end up ahead, and it’s completely on the house.

So, why use Highline Lending for your home loan?

We meet for a consultation, obtain your supporting documents and proceed to structure and package your application for approval knowing exactly what the banks want to see. We also monitor your home loan post approval ensuring you’re home loan suits you and your financial position

We get paid a commission from our lenders as a result of introducing your business to them. Subsequently, our service is at no cost to you. Our commission does not affect your interest rate whatsoever, if anything, we’re in a position to get you a lower interest rate than the general public due to our relationships with our banks

With our many years experience in the industry, we’ve been exposed to both easy and complex loan scenarios. Each loan we process gets presented to over sixty financial institutions, ensuring we have explored all options possible and are able to provide a solution