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 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 impartial 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!

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