Getting a home loan: What to do when the bank says “No”

by Nov 14, 2019Mortgages, Non-Bank Lending

It’s easy to feel discouraged when a bank rejects your home loan application, but it’s important that you do have other options when it comes to securing a mortgage.

Non-bank lending can be an excellent option for home buyers who have had their mortgage
applications turned down by a bank. Non-bank lenders (sometimes referred to as second-tier
lenders) are less tightly regulated than conventional banks, which allows them to be more
lenient with their lending criteria and offer a wider range of home loan products.

Want to learn more about non-bank lending? Read on to learn more about why a bank might
have rejected your loan application and find out if non-bank lending is the right choice for you.

Why did the bank reject my home loan application?

Banks take many factors into consideration when assessing your home loan application. Here
are three of the most common reasons why a bank might reject your application:

1. High debt to income ratio

Here in New Zealand, all banks must abide by the Responsible Lending Code, which stipulates
that lenders must do their due diligence to ensure borrowers will be able to service the loan
without suffering substantial hardship.

Part of this involves looking at your debt to income ratio. Your debt to income ratio is your total
debt (from all sources), as a ratio to your gross income. Your mortgage application may be
rejected if the bank deems your debt to income ratio is too high. The ratio can vary between
lenders, so be sure to talk to your mortgage broker to discuss your options.

2. Self-employed or unsteady income

Banks are also reluctant to approve home loans to applicants with inconsistent income. For
example, if you are newly self-employed, have an erratic work history or are engaged in short
term working arrangements, there’s a good chance your bank will perceive you as a high-risk
borrower and will not approve your loan. Lenders need to be confident that you will have
sufficient income to pay back the loan.

3. Bad credit history

Banks also take your credit history into account when looking at your home loan application. For
example, if you’ve missed credit card payments in the past, defaulted on a loan or filed for bankruptcy, you may have a poor credit score, which indicates to lenders that you could be a risk.

Curious about your credit score? There are a number of credit reporting companies in New
Zealand that allow you to check your credit score for free. You can improve your credit score by
paying your bills on time, reducing debt and disputing any errors contained in your credit report.

Explore non-bank lending options

Regardless of why your mortgage application was rejected, the good news is that you do have
other options.

In New Zealand, there are a number of non-bank lenders such as credit unions and building
societies, which are cooperatively owned institutions that offer similar products and services as
those you would expect to find at a bank. Non-bank lenders account for about 2 percent of the
New Zealand home loan market, and that figure is steadily growing as more and more people
look for alternatives to traditional bank home loans.

Non-banks are not governed by the same regulations that apply to banks, so they can offer
more personalised products and services – including bad credit home loans.

As the name suggests, a bad credit home loan is a mortgage for people who have issues with
their credit history. They may have slightly higher (yet still competitive) rates than bank loans,
but they can be very useful for home buyers who would otherwise be unable to secure a
mortgage. If you’re diligent with your finances, it’s often possible to refinance bad credit
mortgages into a bank home loan.

Talk to your mortgage broker about non-bank lending

When the bank says “No”, we like to say “Yes”. Here at iLender, we work with a wide range of
non-bank lenders, which allows us to provide our clients with home loan solutions tailored to
their unique circumstances.

If you have a problem with proving your income, are dealing with current or past arrears, or
have issues with your credit history, we’re here to help. Give us a call today on 0800 536 337 for
a no-obligation chat with one of our home loan experts.

About iLender

At iLender we put your best interests first and not the Bank – our advice is unbiased as all Lenders who we do business with pay about the same in commissions.

Although we are Auckland based Mortgage Brokers, we help customers everywhere in New Zealand and overseas with buying property in New Zealand, as we are very much about online and giving advice here and now!

Struggling to save up for a 20% deposit? Here are your options

Struggling to save up for a house deposit? You’re not alone. Buyers across the country are feeling the effects of a booming property market, with the latest real estate figures showing that the median house price increased more than 25 percent over the past year to a...

The 5 big benefits of Property Investing

Rental property is a popular and profitable form of investment. Buying the right investment property can provide strong capital gains and regular income, while being able to leverage real estate opens up new opportunities for creating wealth.  Thinking about...

How to get a mortgage when you are Self-Employed

There’s a lot to be said for working for yourself. Whether you’re a freelancer, contractor, or small business owner, striking out on your own offers a sense of opportunity that’s hard to find in salaried roles. However, self-employment can make things tricky when it...

Government Housing policy changes – March 2021

Can they work or is there ‘an elephant in the room’? A lot of comment has been made around the Government’s changes to Residential Property Investment over the last few days, so I thought commentary from me, with nearly 30 years in Property Finance, might bring some...

What kind of loans can I get with bad credit?

A few financial slip-ups in the past can have a surprisingly big impact on your credit rating. A bad credit rating indicates that you may be a risky borrower, which can make it difficult to get the bank’s approval when the time comes to apply for a home loan....

LVR changes and what do they mean for you?

Background In 2013 the Reserve Bank introduced LVR restrictions to curb a potential overheating of the property market. As a rule, owner occupiers needed a 20% deposit and investors 40%, later reduced to 30%. There was some leeway with banks able to lend a very small...

Getting a home loan: What to do when the bank says “No”

It’s easy to feel discouraged when a bank rejects your home loan application, but it’s important that you do have other options when it comes to securing a mortgage. Non-bank lending can be an excellent option for home buyers who have had their mortgage applications...

Credit searches – What to know before you apply for a Mortgage or Loan

All Lenders use a credit search as part of their assessment of a Mortgage or Loan Application and there are some things that are important to know. Some Lenders use a credit scoring system, some don’t. Credit Scoring Mainstream lenders use a credit scoring system and...

More Reasons To Be Cheerful

Upturn in House Prices… A couple of the major Banks are predicting house prices to increase by up to 7 per cent next year with the property market due to "spring back to life". This is a welcomed announcement as it comes on the back of a fairly quiet winter - so signs...

Can I get a home loan with bad credit?

Getting a mortgage can be challenging if you have bad credit or no credit history. Banks tend to perceive you as more of a risk and are generally less inclined to approve your home loan application.  But that doesn’t mean it’s impossible to get a mortgage. Here...

Best mortgage rates, 10% deposit owner occupied and 20% rental purchase, self employed with no financials and help for those with bad credit or arrears.

Hundreds of reviews on TradeMe and Google makes us your ‘Number 1’ choice.

Call 0800 536 337