Why Was My Home Loan Rejected? The Real Reasons (and How to Fix Them)

Key Takeaways

• Home loan rejections aren’t personal—they’re about how your loan application tells the story of your finances.
• The most common hurdles: not enough deposit, poor credit score, risky spending habits, or even the property itself.
• Lenders use strict lending criteria and assess your financial situation, including your income, spending, and credit history.
• Every challenge has a fix—from showing genuine savings to cleaning up your credit report, or working with a mortgage broker who knows the home loan application process.
• With the right strategy, you can go from rejection to mortgage approval.

Buying a home is exciting — until your home loan application gets declined and the bank says, “Computer says no.”

Here’s the truth: lenders aren’t being mean, they’re being cautious. A mortgage application involves serious money, and banks need confidence you can handle the repayments—even if interest rates rise. Often, rejection isn’t about your worth, but about how your application process looks on paper compared to the bank’s lending criteria.

Let’s unpack the top reasons lenders say “no” to an application—and how to fix them.

1. You Don’t Have Enough Deposit (Yet)

Banks rarely offer 100% loans anymore. A solid deposit shows commitment—and affects whether you’ll pay Lenders Mortgage Insurance (LMI).

Example: On a \500,000purchasewitha90500,000 purchase with a 90% LVR, you’ll need at least \\500,000purchasewitha9050,000 saved. Add stamp duty, moving costs, and fees, and you’ll see why tiny deposits don’t cut it. Without solid genuine savings, your home loan application may stall.

Fix it:

• Set a clear savings goal
• Check if your credit provider accepts gifted deposits
• Work with a mortgage broker to compare lending conditions and LVR flexibility
  
  

2. Your Income Isn’t High Enough

Lenders stress-test repayments against rising interest rates and your living expenses. Many use the 30% rule: repayments shouldn’t exceed around a third of household income. That’s your debt-to-income ratio in action.

Fix it:

• Reconsider property price to match your borrowing power
• Boost your income (side hustle, overtime, new role)
• Apply as a couple for combined income
  
  

3. Your Spending Habits Send Red Flags

Lenders comb through your bank statements. If they see Afterpay splurges, big take-away bills, or no consistent savings, your financial circumstances may look shaky. Remember, they want genuine savings, not just pay-in/pay-out habits.

Fix it:

• Audit the last 3 months’ living expenses
• Cut non-essential spending
• Build regular savings discipline
  
  

4. Poor Credit Score

Your credit score tells lenders whether you can be trusted to repay. Too many loans, late bills, or multiple enquiries across credit reporting bodies impact your profile, along with overdue payments or unpaid credit card debt.

Fix it:

• Check your credit report (free once a year)
• Pay off debts and overdue bills
• Reduce your use of credit cards and avoid excess credit limits
• Keep an eye on your credit rating under Comprehensive Credit Reporting rules
  
  

5. Incorrect or Dodgy Info

Your mortgage application will be checked line by line. If a lender spots unreported debts, inflated income or errors, they don’t ask—they reject. Accuracy and transparency are everything.

Fix it:

• Triple-check your application
• Declare all liabilities, even things like personal loans or credit card debt
• Be upfront: lenders value honesty
  
  

6. You’re “Too Old” for the Loan

Most Australian lenders want loans finished before age 80–85. So if you’re 55 applying for a 30-year loan, the numbers may not line up for final approval.

Fix it:

• Apply for a shorter term
• Show an exit strategy (downsizing, super lump sum withdrawal)
• Use a guarantor if needed
  
  

7. The Property Itself Is the Problem

Banks reject some homes outright—tiny units, rundown properties, or those in disaster-prone areas like flood zones. If they don’t think they can sell it quickly in a default, no approval.

Fix it:

• Have your mortgage broker check restrictions before you buy
• Avoid “too niche” or risky homes
  
  

8. You’re Not a 9–5 Worker

Contractors, freelancers, and business owners may find the home loan application process tougher. Without payslips, banks require more paperwork and tax returns.

Fix it:

• Show at least two years of tax returns and a strong credit history
• Use an experienced broker who understands alt-doc loans
• Keep business and personal finances apart
  
  

9. Major Life Changes During Application

Changing jobs, buying a car, or having a baby mid-way through your application process? That shifts your financial situation. Lenders like stability while assessing for mortgage approval.

Fix it:

• Try to hold off big changes until after final approval
• Communicate clearly with your mortgage broker if unavoidable
  
  

10. Your Credit Card Limit Is Holding You Back

Even if unused, a high credit limit reduces your borrowing power. A \$20,000 limit can weigh heavily even with no balance. To a credit provider, every liability is risk.

Fix it:

• Reduce limits
• Cancel old credit cards
• Keep your credit card debt low or nil
  
  

11. Silly Transaction Labels

Jokes like “weed money” in your bank statements? Not funny to lenders. They judge character as well as numbers.

Fix it:

• Keep transaction labels clean and simple
• Remember: someone will read every line
  
  

Final Word

Getting knocked back on a home loan isn’t the end. It’s feedback. With the right guidance—cleaning up your credit history, building genuine savings, or tailoring your loan application to meet the bank’s lending criteria—you can turn a no into yes.

At Mountway, we make the home loan application process less painful. We don’t judge—we strategise.

👉 Book a chat with our team today and let’s get you the mortgage approval you deserve.