No one likes being rejected. Some of us still blush when we remember being turned down by Patrick Summers at the Year 9 dance. That’s just for instance. We’re not saying it’s an actual real life example that comes back to haunt anyone in the middle of the night. Anyway – mortgages. We sometimes get new clients who have first applied for a mortgage directly with a bank, only to have their application rejected. “How soon can I re-apply for a mortgage after being declined by a bank?” is a question we often hear from these clients.
Note: This article is current as of 27 September 2021.
Typically you can reapply with the bank that rejected you about 3-6 months after you were declined. The bank will let you know the exact period when they advise you that your application wasn’t successful. You can apply at any other banks straight away.
The key thing is (shameless plug) to use a mortgage broker going forward. A mortgage broker will find out which bank is most likely to approve your application and give you advice on how to improve your chances of approval. If you’re not in a position to get a mortgage with a bank, you may be able to get a loan with a non-bank-lender. Your broker will go through all of the options with you. A bank’s acceptance criteria can change week to week and your broker will be across the different criterias of each bank.
You may still be in a position to get a mortgage. Your options moving forward depend on the reason your application was rejected. Generally, the reasons will fall into one or more of three categories; not enough income, not enough deposit or a bad credit score.
If a bank wasn’t willing to lend you what you need due to your income, there are a couple of options to look into with your mortgage broker.
Firstly, the banks all take into account different things and use different calculations to determine affordability. This means your income may meet the threshold of another bank. The exact same application that was rejected at one bank may be successful at another.
Secondly, the banks take into account any debt you have when calculating your income. If debt is the reason your income isn’t high enough, look into whether there are some quick gains to be made. The bank calculates your credit card debt based on the cards’ limits, not what you currently owe. Reduce your credit card limits as much as possible. If you have any hire purchases or a student loan that is nearly paid off, look into paying them in full to get rid of them. But make sure paying them off doesn’t reduce your deposit too much.
Once you’ve worked through those options, put together a plan to get any remaining debt down as soon as possible. For more info, check out our article on everything you need to know about debt.
This next piece of advice requires a bit of chutzpah: ask for a raise. It’s an uncomfortable conversation to have but it could ultimately get you a mortgage.
Finally, a non-bank lender (otherwise known as a second tier lender) may be an option for you. They don’t put as much weight on your income when deciding whether to give you a loan, and are generally happy to loan to the relatively newly self-employed. However, to allow them to take risks that the banks won’t, they charge a much higher interest rate. This therefore is a short term strategy to get you into the housing market. Put a plan in place to get yourself approved for a bank mortgage within two or so years. Note that there are some additional costs to using a second tier lender, including a broker fee as, unlike the banks, they don’t pay mortgage brokers directly.
Failing all the above, it’s time to think long term. Get debt down and keep it down. Look into career progression paths that will result in higher income. This may mean some study costs in the short term. But if you invest in education wisely and with a clear financial end goal, it will likely be worth it in the long run.
These are all big challenges to tackle, approach them one step at a time, track your progress and celebrate any milestones along the way.
If your application was rejected due to not having enough deposit, there are options.
If you weren’t too far off a 20% deposit, another bank may still be able to approve your mortgage. Each of the banks have a certain amount of money they can loan at over 80 LVR. They can have a small number of mortgages on their books with as little as 10% deposit for existing properties and even down to 5% for new builds. But to be considered for one of these low equity loan your income needs to be good. Funding for these sorts of mortgages depends on how much low equity lending a bank has on their books at the time. This means a big part of whether your application is successful comes down to timing. Your mortgage broker will know when a bank is open for mortgage applications with less than a 20% deposit and so will be able to time your application just right.
Check also whether you are eligible to use your KiwiSaver or get the First Home Grant or First Home Loan. Note that with KiwiSaver you may still be eligible to use your deposit, even if you have previously owned a property. To decide if you qualify, the Government will assess your application to determine whether you are in a similar financial situation as a first home buyer.
A non-bank lender may be an option for those declined by the banks due to deposit, just as they are an option for those declined due to income. As stated above, non-bank lenders charge a much higher interest rate. This allows them to take risks that the banks won’t. They’re a good short term strategy to get into the market. Just make sure you have a pathway to get a bank mortgage within a couple of years.
If at the end of the day you just have to grow your savings, double check if you will be eligible to use your KiwiSaver for the deposit. If the answer is yes, focus on putting your savings there rather than in a bank account. This will give you much better returns for your money, thereby growing your deposit faster.
If your report is incorrect it’s important to get the correction process underway immediately. It is unfortunately a hard journey to get reports rectified. There is a high burden of proof due to many people trying to scam the system. So take some deep breaths, promise yourself as many bubble baths or herbal teas as you will require and get prepared to compile a lot of paperwork and to follow up on progress daily.
Key tip: Be nice to whoever is on the other end of the phone. They are talking to angry people all day and get a lot of abuse for things that aren’t their fault. It’s a tough job that doesn’t pay enough considering what they deal with. Kindness will likely get you further than anger, just be persistent so it’s clear you are not going away! After you hang up the phone feel free to swear and throw things.
If your credit report is correct then focus on lifting your credit score. You do this by:
You may still be able to get a loan from a non-bank lender. Again, they will price their interest rates higher than the bank to cover their risk. The worse your credit score is, the higher the interest rate will be. Make sure you will be able to service your mortgage at the same time as improving your credit score. The goal is always to have your mortgage with a bank within a couple of years.
So while the question may be "How soon can I re-apply for a mortgage after being declined by a bank?” the answer is often "Don't worry, you have options".
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