8 Reasons Your Home Loan May Be Rejected After Pre-Approval

Getting a pre-approved home loan can be a great confidence boost, but it doesn’t necessarily guarantee you unconditional loan approval. In some cases, your formal loan application can be denied, even after you’ve been granted conditional approval.

Read on to learn more about pre-approval and the common reasons behind a rejected loan application.

What is pre-approval?

Pre-approval, also known as conditional approval, is a preliminary step in the home loan application process. It demonstrates how much a lender might be willing to lend you based on your current circumstances. Gaining pre-approval can give you a good idea of your borrowing power so you can narrow down your house hunt to properties that are in your price range. 

But just because you have pre-approval doesn’t necessarily mean that you’ll be granted a home loan. Pre-approval typically includes a list of conditions that you need to meet before the lender will formally approve your home loan. 

Reasons for rejection

So, your lender granted you pre-approval but your home loan application was knocked back. You might be wondering why. Here are some of the most common reasons behind a lender's decision to deny your home loan application after providing you with pre-approval.

Changes to your financial situation

If your financial situation has changed in the time since you first applied for pre-approval, the lender might find that you’re no longer able to service the loan. Changes in your financial situation can come down to a range of different reasons, like:

• Reduced working hours,
• Recent large purchases, like a car, boat or holiday,
• An increase in debt, or
• A reduction in your overall household income.

While some of these factors might be out of your control, it’s always best to maintain the same income and expenses during the period between getting pre-approval and applying for a home loan.

You’ve changed jobs

Have you switched jobs since being granted pre-approval? This can often be reason enough for a lender to reconsider the stability of your employment. If you’re not seen to have a reliable job, you can increase your risk as a potential borrower, which can make it more difficult to get loan approval.

Your credit score has taken a dive

Late payments, increased debt or the discovery of undisclosed debts, can reduce your credit score. If your credit score has taken a hit since you first applied for pre-approval, it could be reason enough for your lender to deny your home loan application. So, be sure to stay on top of your bills and any existing debt. 

The bank’s lending criteria have changed

As the economic environment and market conditions change, so do lenders’ credit criteria. If the lender has tightened their credit requirements since you were granted pre-approval, there could be a chance that you no longer meet their lending criteria and your application could be denied. 

Interest rates have increased

Interest rates are constantly fluctuating. As interest rates go up, it makes it more expensive to borrow money. If your financial situation has stayed the same while interest rates have risen, you might not be able to service the initial loan amount based on a higher interest rate. 

The property doesn’t qualify

In some cases, the lender might have concerns about the property itself, like its condition, appraised value or location, especially if it’s in a disaster-prone area. If the property doesn't meet the lender's criteria, it could result in your loan application being rejected. 

Misrepresented information

If you fail to declare important information or misrepresent details on your application for pre-approval, it could lead to loan rejection. This includes anything from inflating your income to downplaying debts. When it comes to applying for a home loan, it pays to be honest or you could miss out.

What to do if you’re rejected after pre-approval

Rejection is never nice, but there are a few steps you can take if you do face home loan denial:

• Understand the reasoning: Find out the specific reasons for the rejection. This information will help you address any issues and improve your chances in the future.

• Address any issues: If you’re able to address any issues or omissions in your home loan application, be sure to provide all the relevant information. You might need to provide more documentation on your income, employment, assets or liabilities. 

• Find a different property: If the reason for the rejection is based on the property itself, keep house hunting until you find a home that meets the lender's criteria. 

• Review your finances: Take a close look at your financial situation. Are there changes you can make, like paying down debt, increasing your income or saving for a larger down payment that could make you a more attractive borrower?

• Check your credit score: Check your credit report for any inaccuracies. Be sure to dispute any errors you find. Otherwise, work on improving your credit score by staying on top of your payments and reducing your debts.

• Consider another lender: Different lenders have different criteria, so being rejected by one doesn't mean you'll be rejected by all. Explore other lenders and mortgage options that may be more suitable for your situation. 

• Consult a professional: If in doubt, there’s no harm in engaging a mortgage broker or financial adviser to help you navigate the application process. They’ll be able to provide you with tailored advice based on your circumstances.

While Unloan doesn’t currently offer conditional approval or home loans for property purchases yet, they’re in the pipeline and should be launching soon. In the meantime, you can use our borrowing power calculator to work out your budget or request a property report complete with property details, estimated value and property market insights.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000. 

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.