Tag Archives: Can I Still Get a Mortgage If I Have Debt

Mortgage Application Rejected , Home Loan Denied, Declined Home Mortgage

How soon can you re-apply after your mortgage application was declined?

We hear the phrase “My mortgage application was declined” on almost a daily basis. With the current tight lending rules, having a mortgage application declined by the bank is an all too common occurrence. It can be very discouraging, but don’t lose hope; there are usually options available to overcome your home loan obstacles.

It is not over if your mortgage application was declined

It’s usual for a bank to require a 3-6 month stand down after they decline an application, after which you can reapply. They’ll inform you of the actual period as part of the application process. But (more importantly) there is nothing to stop you applying straight away with another lender. The key thing is to understand why you were declined by your initial chosen lender. You can then take any action needed to rectify the issues.

Form showing mortgage declined

The importance of using a mortgage broker

We realise that a mortgage broking company saying you need a mortgage broker is hardly impartial advice. But our reasoning is compelling. Your mortgage broker will be able to look at your situation and walk you through why you were declined previously. They’ll then be able to advise you on what needs to be done to be successful in getting a home loan. They’ll look across all lenders, and with their industry knowledge of what the current acceptance criteria is from lender to lender, they’ll know where you are likely to be approved. This is huge, as lending criteria is individual to each lender and it changes all the time.

Understand why your mortgage application was declined

The majority of applications get declined due to one or more of the following reasons:

  • Not enough deposit
  • Not enough income
  • A bad credit score

Once you understand why you were declined, you can discuss with your mortgage broker whether a different bank may accept your application. The banks each use different formulas when assessing whether a mortgage meets their “affordability” threshold. An application could be rejected for not enough income at one bank but accepted at another. Banks sometimes offer mortgages at under 20% deposit, your mortgage broker will know if this is an option currently available and whether you would meet the criteria.

If none are likely to, that leads us to…

Banks aren’t the only option when looking for a mortgage

The stringent lending rules among the banks can mean that an applicant who is perfectly capable of servicing a mortgage still gets declined by the banks. This is where a non-bank lender/second tier lender can be a good option. They accept many applications that the banks decline. The flipside is they charge higher interest rates, but many people find it a worthwhile compromise to get on the property ladder.

If you do go with a second tier lender, make sure to make a financial plan to get yourself in a position to move to a bank within a couple of years to avoid paying higher interest long term.

Non-bank lenders are often a good fit if:

  • You’re newly self-employed. Usually the banks don’t approve lending to someone who has been self-employed for less than two years.
  • Your income doesn’t meet the banks’ standards (but is still high enough to service a mortgage without hardship).
  • You don’t quite have enough deposit for the banks.
  • You’ve been recently discharged from bankruptcy.
  • You have a low credit score.
Mortgage denied

What to do if you don’t currently meet the lending criteria or your home loan is declined

Next steps if you don’t have enough income

Reducing any debt is often the best place to start increasing your income. The banks minus any loan repayments when calculating your mortgage, and they assume the repayments will continue indefinitely. So if you’ve got any loans close to being paid off it could be worth doing so sooner rather than later. Of course, this could eat into your deposit so it’s a balancing act.

The banks also assume any credit cards or overdrafts will be maxed out. Therefore they calculate your income on the basis you will be making the maximum payments each month. They don’t take into account whether or not you pay your credit card off each month. Reduce your credit limits where possible, or better yet, cancel your credit cards and overdrafts.

Beyond reducing debt, increasing income can be tricky. Kiwi’s aren’t great at asking for a raise but if you can find the courage then it could be the difference between getting your own home or not. Look for opportunities for career progression within your job or even a job change if it will provide more opportunity and salary. We know these are not easy changes to make! If you do decide to go for it, make a plan and break it down into steps. Focusing on one step at a time will make the big moves feel much more manageable.

Next steps if you don’t have enough deposit

If you don’t have enough deposit, make sure you’ve looked into using your KiwiSaver and whether you qualify for the First Home Loan or First Home Grant. If it’s a matter of saving more, then make a budget and put savings aside regularly. An automatic transfer of your budgeted savings to a separate account each pay day can really help you stay on track.

Next steps if you have a bad credit report 

As advised previously, second tier lenders are often a viable option for those with bad credit scores. Don’t assume you don’t have borrowing options without first speaking to a broker.

If you have a bad credit score, make sure you check the details are correct. It can be a challenge to get them rectified, but is worth pursuing it if it changes your score from bad to good.

If your report is correct then it becomes a matter of improving your credit score. This means reducing credit limits, paying bills on time and paying off hire purchases! You could even consider completing a debt consolidation to reduce the overall interest rates being paid.

Ultimately, the steps you need to take and the options available to you when applying for a mortgage are very much dependant on your specific circumstances. So we hope we’ve convinced you that a mortgage broker is advisable whenever you are looking for a mortgage, but especially so if you’ve been going it alone and have had a mortgage application declined.

Platinum Mortgages specialises in mortgage solutions for those who can’t get straight forward approval from a bank. Reach out for a no-obligation chat about your circumstances and whether we can help.

Can I Still Get a Mortgage If I Have Debt?

In a word – yes! This article will give you an understanding of how the banks take debt into consideration when reviewing a mortgage application, as well as information on the other lending avenues out there. The best option for you depends entirely on your personal circumstances. Contact us for a free consultation. We will give you advice and support specific to your situation.

How do the banks view debt when considering a mortgage application?

When reviewing a mortgage application, the banks look at three things relating to debt:

  • Current debt
  • Liability
  • Credit score

Current debt

First, they will deduct any loan payments when calculating your income. Let’s say you have an income of $50,000 per annum after tax. You also have loan repayments totalling $10,000 per annum. The bank will reduce your calculated income to $40,000. Sometimes, if the loan amounts and types show a pattern of ‘reckless’ spending, the bank may consider whether the applicant is going to responsibly manage the financial obligations of a mortgage

Does the bank care about big student loans?

When it comes to student debt, the banks aren’t usually concerned by the amount. This is because the loan repayments are always based on the person’s income, not how much is owed. And student debt is considered ‘good’ in that it likely has improved the person’s earning prospects in the long run. Given that some professions require students to go into debt in the hundreds of thousands, this is a big relief for many prospective homeowners!

Does the bank care about loans that are nearly paid off?

It’s important to be aware that the bank doesn’t look at when the term of a loan is up. If you’re a couple of months away from paying off your car loan at the time of applying, the bank won’t take that into account. Instead, they’ll calculate your income as if you are making those loan payments for the foreseeable future. For this reason, it can sometimes be a good strategic move to pay off a debt sooner. That would mean however that you’re likely to reduce your deposit, so it’s a bit of a balancing act. We can help you decide what the best move is for you.

Liability

Liability refers to any credit card or overdraft limits. When it comes to credit cards and overdrafts, the bank doesn’t look at how much you currently owe. Instead, they will calculate your debt using the assumption that you will spend up to your credit card and overdraft limits. So, a great first step to getting your finances in order is always to reduce your limits down as much as possible. This will increase your “income” as the bank sees it.

Credit score

Finally, they will look at your credit score. This will reflect any “bad debt” you may have. Generally speaking, bad debt means late or missed payments for loans and bills, tax debts and defaults and bankruptcy. You may not be aware that credit inquiries also reduce your credit score. Every time you apply for a hire purchase scheme or credit card etc your credit gets checked, impacting your score.

Can I Still Get a Mortgage If I Have Debt

What are my options when my mortgage application is declined by the banks?

It can be really disheartening if you get your mortgage application declined due to bad credit. You may have tidied up your finances and be in a secure financial position but due to your credit history the bank won’t lend to you. This is where non-bank lenders are a great option. We’re not talking about those shady finance companies that charge 8% interest per week and encourage you to go into debt for a holiday or a flash car. Non-bank mortgage lenders fill an important space. They provide loans to people who can afford a mortgage but aren’t able to get a loan with a bank.

Why can non-bank lenders give me a mortgage when the banks won’t?

They can approve mortgage applications that the banks have deemed too risky. To enable them to take risks, they charge a higher interest rate than the banks. This isn’t something to fear, you just need to factor the cost into your budget. It’s the price to get you into the property market now and secure a big asset for your future. They’re a great short-term solution to get into your own home. The key thing is to go in with a plan to get your finances tidied up to the point you can go to a bank within a couple of years.

We love supporting clients into their first home through a non-bank lender – and then helping them into a mortgage with a bank a year or so later. Once our clients have a mortgage with a bank (and therefore lower interest rates) we encourage them to continue to make the same payments as when they were paying more interest. This means their mortgage gets paid down faster and saves them huge money in the long run than if they’d just been making the minimum payments.

So there you have it, you can get a mortgage with debt or bad credit

Don’t assume a mortgage isn’t possible for you in your current circumstances. The key thing is to get expert advice to understand your options and maximise your chance of your application being approved. Platinum Mortgages specialises in solutions for people who have been declined by the banks. If there is a way, we will find it for you. We’re here for you for the long term, from helping you put a plan in place to get a mortgage, managing the loan process for you, getting you the best mortgage and mortgage structure, and managing your mortgages throughout your lifetime. We love seeing our client’s financial situations improve with our help, securing their future and a place to call their own.