During a home loan approval process, what do lenders watch out for when accepting applications?

When buying a new home, lenders want to see that you have outstanding financial health to cover the cost of the purchase price plus interest and fees, and maintain your home loan. 

The mortgage lending industry has changed dramatically over the last decade. Lenders now require borrowers to provide much more information before approving them for a loan. This means that lenders are looking at more data points than ever before — and you might run into potential roadblocks in your application for a home loan if you don’t know what bank activities are raised as “red flags” by lenders.

Red flags when applying for home loan

Below are potential red flags in your financial records that can be remedied with the help of a home loan mortgage broker:

1. Owing money on HECS and Buy Now Pay Later (BNPL)  accounts 

HECS-HELP debts and BNPL debts like Afterpay are now taken into account under DTI (debt to income) where they were previously not. Although debts from HECS-HELP were already included before, the recent mandate for banks to also include BNPL debts impacts younger Aussies the most.

2. Being employed by family

Working for family could send a message to lenders that a relative has employed you for the sole purpose of getting a mortgage. And typically, employments of this nature lack a proper contract which is a main requirement for most lenders.

3. Questionable spending habits

Buying luxury items might signal to lenders that you are not a reliable borrower especially if the cost of these items are disproportionate with your income. Having several store cards and struggling to clear monthly balances can also be considered a ping on your application.

4. Lack of genuine savings

Genuine savings are funds that borrowers have saved themselves gradually over at least three months. Lenders accept as genuine savings any funds that amount to 5% or more of the property value.

Tips on how to get approved on your application for a home loan

  • Look into alternatives (e.g., getting a guarantor, tapping into your home equity, etc) if you cannot comply with the standard 20% deposit requirement. Talk to a mortgage broker to see what your options are.
  • Curb your unhealthy spending habits.
  • Pay off all your BNPL debts and close these accounts as soon as you can.
  • Be prompt with your bills (e.g., energy, water, phone, insurance, etc).
  • Maximise every opportunity to build on your savings and present eveidence of your savings history.
  • Avoid applying with too many lenders at once.
  • Show solid proofs of income (e.g., two recent payslips, tax assessment notice, rental income, family allowance payments, child support payments, Business Activity Statements, etc).
  • Submit a home loan pre-approval.

FAQs on application home loan

How to apply for a mortgage?

Your chances of home loan approval largely depend on your circumstances, the lender of your choice, and your mortgage broker’s ability to help make a strong case for your application. Have a trusted mortgage broker NSW to advice you on how to apply for your mortgage.

What are the home loan application requirements? 

This will depend on the lender you’re borrowing from. Best to talk to your mortgage broker to help you liaise with your preferred lender and potentially get a preferential treatment.

Can I apply for mortgage with multiple lenders?

Yes, and this is advised so you can pit one lender against another to get a better rate or deal. However, applying to multiple lenders at once could reduce their confidence in your eligibility and jeopardise your application.

How to apply for a mortgage with bad credit?

With bad credit, your options are severely limited. You can:

  • apply with a lender who does not use credit scoring;
  • cover the 20% deposit and other related costs upfront; or
  • apply with a specialist lender.

When is the best time to apply for a mortgage?

Lenders typically have a regular monthly business cycle. The best time to apply is during the first few business days of the month. The worst time is the last week of the month as mortgage brokers are rushing to get as many loans closed as possible.

Talk to a mortgage broker Australia for your loan process

At Stryve Finance, our mortgage brokers will guide you through the entire application process, including smoothing out the potential red flags in your application and helping you find the best deal for your needs. 

When you work with us, we will take care of all the paperwork and negotiate between various lenders on your behalf to obtain competitive rates, fees and terms.