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Imagine: You’ve received the okay from the bank to borrow enough money to purchase your first home, and after attending many different open homes you finally find the property you want to purchase. You’re all set to make an offer. But then – oh no! – your home loan application is declined.

Unfortunately, this disappointing scenario can happen from time to time, and it can leave you feeling a bit deflated and asking “why?”. There are some common reasons why an application could be denied after pre-approval has been received, so keep reading to learn more about them.

What is pre-approval?

Pre-approval is a conditional agreement that a lender makes to loan you a certain amount of money. It’s often based on information you’ve provided such as your salary, your assets and your debts and liabilities.

The information you give the lender in the pre-approval stage helps them weigh up the likelihood that you’ll be able to pay back the money that you borrow. However, it’s not a guarantee that you’ll be given that amount. This is because the lender won’t yet have the complete picture needed to guarantee a home loan, as they won’t have any information on the property you are interested in purchasing and its potential future value.

Pre-approval often helps borrowers narrow and focus their property search. For example, if you’ve obtained pre-approval for a $500,000 loan, your property search will probably not include properties valued at more than that amount.

Remember that pre-approval is not a guarantee of unconditional approval. In other words, you’re not guaranteed a home loan. Do not enter into a contract of sale until you have obtained unconditional approval.

What is unconditional approval?

As the name suggests, unconditional approval is when you receive confirmation that the lender will give you the specified loan amount. It means you’re getting a home loan. Before you reach this stage, the lender will need to verify your earnings as well as review many other things.

Why might a lender decline a home loan after pre-approval?

There are several reasons why you might receive pre-approval for a home loan but not unconditional approval. For example:

  • Your circumstances have changed. You may have lost or changed your job, the valuation of an existing asset may have reduced, or your credit score has changed because you’ve taken on new debt.
  • The lender assesses your chosen property’s value as lower than that which you’re planning on paying for it, or it doesn’t qualify for a home loan (it needs substantial renovations or is in a disaster-prone location).
  • Interest rates have risen since you received pre-approval.
  • The lender’s lending criteria has changed between the time the pre-approval was given and when the unconditional approval was sought.
  • You haven’t disclosed all the information needed or have been dishonest in your pre-approval application.

Generally, the lender should be able to provide you with some details on why your loan application has been turned down.

Unlike some other banks and lenders using automated systems, P&N Bank has a team of people assessing pre-approval applications. This means each application is reviewed by a real person, with the same people working to get your application to full approval, in turn giving you a good chance of turning your pre-approval to full approval, if you decide to proceed.

What do you do if your home loan application is denied?

Your next steps will all depend on the reason for the application rejection. You may need to supply more information to the lender, find a different property to purchase or delay your property hunt for a while so you can work on improving your credit score. The reason for denial may not be something you can fix quickly.

Now is a good time to remind you that each time you try and get pre-approval for a loan, it is recorded on your credit history. This means that it may not be in your best interest to immediately go to a different lender after a home loan is rejected to seek pre-approval from them.

How to improve the chances of getting a home loan after pre-approval

While there are no guarantees, there are a few things you can do which may help with getting your home loan approved.

Avoid submitting pre-approval applications to multiple lenders at the same time.
Be open with your chosen lender about any changes in your circumstances and ensure you supply all the required information when applying for pre-approval.
Avoid changing jobs or selling any existing assets.
Ensure you’re keeping up with any repayments for existing debt such as credit cards or personal loans.
Discuss your property expectations with the lender and ensure there aren’t any lending restrictions.
Demonstrate that you’re well placed to take on the extra outgoings that come with a home loan by keeping your everyday spending in check. Our budgeting app, mymo, can help you track your finances and keep to a budget.

Ready to apply for pre-approval?

It’s important to remember that pre-approvals don’t last forever. In fact, they often have a 90-day expiry so bear that in mind when starting your property hunt.

Make an appointment to speak with one of our Home Loan Specialists today. They can meet you in-branch, at home or work or via video call and can answer any questions you may have about the home buying journey.

Banking and Credit products issued by Police & Nurses Limited (P&N Bank) ABN 69 087 651 876 AFSL/Australian Credit Licence 240701. Any advice does not take into account your objectives, financial situation or needs. Read the relevant T&Cs, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available here or upon request.