If you were successful in obtaining home loan pre-approval, you were probably feeling pretty confident your final home loan application would be approved.
In this article, we’ll explain some of the common reasons home loan applications might be rejected despite having pre-approval. We also cover what to do if your application is denied.
Can my home loan application be rejected if I have pre-approval?
Yes, your home loan application can still be declined, even if you have pre-approval.
Applying for a home loan and being rejected, even after getting pre-approval, can come as a shock.
You’re ready and excited to buy a home, but you’ve been knocked back – shouldn’t having pre-approval prevent this?
Not necessarily. Home loan pre-approval is an indication from a lender that they’re likely to approve you for a specific home loan.
However, being pre-approved doesn’t guarantee that a lender will approve your home loan.
You’re still subject to their lending conditions when you complete your final home loan application.
Keep reading for some of the most common reasons your application may have been declined, despite having pre-approval.
1. Your financial circumstances have changed
Have your work hours reduced since you received home loan pre-approval? Or have you lost your job?
If your financial situation has changed and you have less income, for example, a lender may reject your home loan application.
This is because a lender might now think your capacity to make loan repayments has reduced. Lenders have a responsibility to make sure borrowers can comfortably repay their home loan.
2. You switched jobs
If you’ve changed jobs in the period between pre-approval and applying for a home loan, your lender might deny your mortgage application.
Why? Because changing jobs during this time can lead lenders to view your employment status as more unstable, which can make you a riskier borrower.
You might also be interested in: Changing jobs while applying for a home loan
3. Your credit score has been impacted
Applying for other credit products (like credit cards or car loans), taking on new debt or defaulting on any existing repayments can reduce your credit score.
So, if your credit score is impacted after you’ve been pre-approved, a lender may deny your home loan application.
4. The lender’s credit criteria has changed
Lenders can change their lending criteria at their discretion. This means that if a lender tightens their lending conditions after you were granted pre-approval and you no longer meet them, they could reject your application.
5. The property you’ve chosen doesn’t qualify for a home loan
There are certain types of properties that lenders are hesitant to approve home loans for. This is because these properties may be more difficult to resell in the future than other properties.
Properties in disaster-prone areas, high rise apartments, studio apartments and properties needing substantial renovations may be tricky to get a home loan for.
If you’ve decided on one of these after getting pre-approval, a lender could reject your application.
6. The lender gave you unreliable pre-approval
Sometimes, lenders may not properly verify your documents or automated approval systems might miss important information.
In this case, your pre-approval might not have been accurate in the first place, resulting in your lender denying your home loan application.
7. Interest rates have gone up
If interest rates have risen in the time between your pre-approval and your home loan application, a lender may determine that you’re no longer able to service the loan with a higher rate.
Rate locking can help prevent this from happening. Rate locking is when a fixed interest rate is locked in for a specified period of time before your home loan application is complete.
8. The lender found out information that was not previously disclosed
If you omitted information or lied when you applied for pre-approval and the lender finds out once you’ve applied for a loan, your application can be denied.
What to do if your home loan application is denied after pre-approval
What you do after your home loan application is knocked back will depend on the reason for your lender’s rejection.
Regardless of your situation, it’s usually a good idea to hold off from immediately trying to get pre-approval from another lender.
This is because each time you try, it will be recorded as an enquiry in your credit history.
Fixing the reason you were rejected may take some time. You might need to:
Provide more documentation about your income, assets, liabilities or employment
Find a different property that meets the lender’s criteria
Take a few months to work on improving your credit score
Stay in your job for a while before applying for another loan
Look around for lenders who are suited to your needs and circumstances.
Sometimes the reason your application was denied even after pre-approval is beyond your control.
Unfortunately you can’t predict interest rate hikes, lender policy changes or even your financial situation changing.
How to avoid rejection after getting pre-approval
For prospective home buyers who have home loan pre-approval but haven’t yet applied for a home loan, there are some ways you can avoid getting knocked back.
Check with your lender prior to your house hunt about the sort of properties they lend money for
Hold off changing jobs or selling assets in the period between pre-approval and loan application
Keep on top of any debts and repayments after getting pre-approved
Make sure all the details in your application are accurate and you don’t leave anything out.
If you need a hand applying for a home loan, chat to an Aussie Broker today.
