Why Mortgage Applications Are Declined?

A stamp on a mortgage application form with a mark of ‘declined’

22 Aug Why Mortgage Applications Are Declined?

Getting a home loan is never a sure thing. There are many reasons lenders may decline your mortgage applications.  It is important to understand these reasons so you know what to watch out for when you apply for a home loan. We’ve listed the most common ones below, and we hope this article will help you identify the roadblocks in your mortgage applications and improve your odds of getting approved.

Low deposit

Insufficient deposit is one of the most common reasons for rejection. Generally, a deposit of at least 20%, in cash or made up of equity, is needed to make a purchase in NZ. However, first home buyers could possibly get a home loan with a 10% deposit. To know more about low deposit options, you can seek assistance from professional Mortgage Advisers such as Max Mortgages.

In addition to the quantity of the deposit, lenders also look at the ‘quality’. The chance of approval will be higher if you have saved some of the money yourself for a home deposit, not just had a gift from your parents. A record of genuine savings gives lenders confidence that you’ll be able to comfortably service the home loan.

Unsatisfactory debt-to-income ratio

Lenders don’t want to over-burden people with debts and will ensure you have enough funds to meet other normal day to day costs. A debt to income ratio is a measure of gross monthly income against total recurring monthly debt, and is one of the main things that affect your servicing ability. If your debt to income ratio is too high, lenders may think you’re unlikely to afford to make the mortgage repayments now and into the future. As a result, your mortgage applications may be declined.

Property not acceptable to lenders

Lenders may reject a mortgage application based on the property the borrower wishes to purchase, as they may end up selling the house if the borrower fails to repay the home loan. If a borrower is paying much more for a property than the market price, lenders may be worried that it will be less possible to recoup their losses when the borrower can’t meet the mortgage repayments.

In addition, there are some properties that lenders consider ‘too risky’ to lend on, these can include small studio apartments, some high-rise developments, properties located in rural areas or particular locations, homes only appeal to a particular market, and ones that are in poor condition. In a word, lenders would not be willing to take the risk of granting the home loan if they think the property is not a worthwhile purchase.

Poor credit history

Your credit score plays a crucial role in the mortgage application process. Naturally it makes lenders wary about getting your home loan application approved, if you have a history of not paying back debts or multiple applications for personal loans. It pays to know your credit file details and take steps to repair your credit history if required. However, if you do have an adverse credit history, there are still many mortgage options available in NZ. At Max Mortgages, our Mortgage Advisers are credit experts and we can provide mortgage solutions that your bank can’t offer you. Contact us today to see what Max Mortgages can offer!

Unstable employment situation

Employment continuity is important when it comes to a mortgage application. A history of moving from job to job lowers the chances of your home loan being approved. Most lenders require that you have been in your current job for a minimum of 6 to 12 months and are employed in a stable environment. If you have just started a new job, it’s still worth talking to us.  Our Mortgage Advisers can help you plan and will be there to answer any questions along the way.


Hopefully you are now armed with some useful knowledge. At Max Mortgages, we help people overcome all these hurdles on a daily basis. If your application has recently been refused, or you just want to have your mortgage application approved the first time, contact us today to arrange a no-obligation chat!

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