Why the Bank Might Say No

There can be various reasons why a bank may decline a mortgage application. If you are a first home buyer, it really is worthwhile knowing some of the most common reasons for this so you can minimise the chances of it happening to you.

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  • Not Enough Deposit - one of the biggest deterrents for any home buyer is having to save 20% of the purchase price. While the benefits of a large deposit means less risk to both you, the purchaser and the lender, it can cut first home buyers out of the market. Lenders will pay attention to the quality of the deposit. Regular contributions towards Kiwisaver are seen as genuine saving versus a gift from a family member, so bear this is mind.
  • Not Enough Income - lenders are required to ensure home owners will still have sufficient funds for their everyday living expenses, as well as mortgage repayments.  This is calculated by your debt to income ratio - how much you earn versus how much you have to pay out each month. When this is too high, typically exceeding 40%, you may be declined as you also need to allow for any increase to interest rates. So you may need to look at a more affordable property, paying off any debt or ways to increase your income.
  • Bad Credit History - this can definitely factor into being declined. Your credit history is a record of all financial dealings including hire purchases, credit cards and personal loans. So it can be worthwhile checking online to ensure there are no errors in your records. Should you have bad credit though, there may still be lending options for you with some non-bank lenders. 
  • No Proof of Income -  For those that are self-employed, a contractor or part time worker, it may be difficult to prove your income. Your lender needs to know you can earn enough to meet your income to debt ratio and make repayments. Again there may be a solution with a non-bank lender or talking to a mortgage advisor about your options.