What to Do If Your Mortgage Application Is Declined 🛑🤔

Hearing “your mortgage application has been declined” can feel like a major setback, but it’s not the end of the road. With today’s tighter lending rules, this happens more often than you might think. The good news? There are usually other options to explore.

Step 1: Understand Why You Were Declined

Banks generally impose a stand-down period of 3 - 6 months after a decline before you can reapply with them. However, you can often apply with another lender straight away. The key is knowing why you were declined so you can address the issue.

Common reasons include:

• Not enough deposit
• Not enough income
• Poor credit history

Every lender has different criteria. What one bank sees as a “no,” another may approve. This is why it’s so important to understand the exact reason behind the decline.

Step 2: Get Expert Advice

A mortgage adviser can review your application, identify the sticking points, and match you with lenders whose criteria you’re more likely to meet. Because advisers work with multiple banks and non-bank lenders, they know where your application has the best chance of success.

Step 3: Explore All Lender Options

If the banks aren’t an option right now, non-bank or “second-tier” lenders might be. They often approve applications that banks decline. For example, if you’re newly self-employed, have a smaller deposit, or have had credit issues in the past.

The trade-off is that non-bank lenders generally charge higher interest rates. Many borrowers use them as a short-term solution while they work toward meeting bank criteria and refinancing later.

Step 4: Tackle the Specific Issue

If you don’t have enough income:

• Pay down debt where possible. Banks factor in all existing repayments and assume credit cards/overdrafts are maxed out. Reducing limits or closing unused facilities can help. Increasing your income may also be necessary, whether through a raise, promotion, or new role.

If you don’t have enough deposit:

• Look into using KiwiSaver, the First Home Loan scheme, or adjusting your budget to save more consistently. Automated savings transfers can make this easier.

If you have a low credit score:

• Check your credit report for errors and work on improving your score by paying bills on time, reducing limits, and clearing high-interest debts. In some cases, consolidating debt can also help.

A declined mortgage application doesn’t have to be the end of your home-buying journey. With the right advice, you can address the barriers and find a lender who’s the right fit for your situation. A mortgage adviser can guide you through your options and help turn a “no” into a “yes.”