Getting a home loan rejected is genuinely stressful. But in most cases, it's not a permanent door closing — it's a signal that either the wrong lender was approached, or specific issues need to be addressed first. Here's what to do next.
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Step 1: Find Out Exactly Why You Were Declined
Lenders are required to tell you that you were declined, but they often don't tell you why in detail. Getting the specific reason is your first priority — without it, you're guessing at what to fix.
How to find out:
- Call the lender directly and ask for the specific reason for the decline
- Ask if it was a credit score issue, a serviceability issue, or a policy issue
- Request a copy of the credit report they used — you're entitled to this
- Ask a broker to review the decline — they can often identify the root cause that the bank's generic response doesn't explain
The most common reasons for home loan rejection, in order:
- Insufficient income to service the loan (serviceability failure)
- Credit history issues — defaults, late payments, too many enquiries
- Insufficient deposit or genuine savings
- Employment type — casual, contract, self-employed under 2 years
- Property type — lender won't lend on certain postcodes, property types, or construction types
- Debt-to-income ratio too high
- Application errors or missing documentation
Step 2: Don't Apply With Another Lender Immediately
This is the most important thing most people get wrong after a rejection. Every home loan application you make creates a hard credit enquiry on your credit file. Multiple enquiries in a short period signal financial desperation to lenders and reduce your credit score.
Before applying anywhere else, take time to:
- Identify the specific reason for the decline
- Speak with a mortgage broker who can assess your file across multiple lenders without submitting applications
- Only submit to a lender when you have reasonable confidence they'll approve you
A broker submits to the most likely lender first — protecting your credit file from unnecessary enquiries.
The "shotgun" approach destroys credit scores
Some buyers apply with 5 or 6 lenders after being rejected, hoping one will say yes. Each application adds a hard enquiry. After 4–5 rejections with enquiries, the next lender sees a flood of recent credit searches and is even less likely to approve. Work with a broker who knows which lender to approach for your specific profile.
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Fixing the Most Common Rejection Reasons
If You Were Declined for Serviceability (Income Too Low)
Serviceability means the lender doesn't believe you can afford the repayments. Options to address this:
- Try a different lender — borrowing power can vary by $80,000–$150,000 between lenders for the same income
- Add a co-borrower — a partner or family member's income increases serviceability
- Reduce debts before reapplying — pay off personal loans, reduce credit card limits
- Look at a lower purchase price — a smaller loan is easier to service
- Wait for a pay rise or bonus period — apply after a salary review if one is imminent
If You Were Declined for Credit History
The path forward depends on the nature of the credit issue:
- One small paid default, 2+ years old: Try a near-prime or specialist lender
- Recent default (under 12 months): Pay the default if unpaid, then wait 12 months before reapplying
- Too many credit enquiries: Wait 6 months, avoid all new credit applications, then reapply
- Bankruptcy or Part IX: Specialist lenders — see our guide to specialist lenders
If You Were Declined for Insufficient Deposit
- Check if you qualify for the First Home Guarantee (5% deposit, no LMI)
- Explore a guarantor arrangement — parents' equity can cover the shortfall
- Continue saving and reapply in 6–12 months with a larger deposit
- Consider a cheaper property in a different suburb
If You Were Declined for Employment Type
Casual, contract, or self-employed income is assessed differently by different lenders. Some lenders are much more flexible with contract workers or recently self-employed borrowers than others. A broker knows which lenders to approach for your specific employment type.
Should You Use a Broker After a Rejection?
Yes — this is when a broker is most valuable. Brokers:
- Can identify the specific issue without you applying (protecting your credit score)
- Know which lenders are most likely to approve your profile
- Can present your application most favourably — particularly important for self-employed, bad credit, or complex income
- Have access to specialist lenders that don't deal directly with consumers
- Can advise on what to fix and when to reapply if now isn't the right time
At Mortgagefy, we specifically work with buyers who have been declined elsewhere. We give an honest assessment — not false hope — and a realistic action plan. Most clients who've been declined by a major bank have a realistic path forward, even if it requires some preparation first.
Call us on 0432 634 648 or use the chat below. See also: Bank Rejected Your Home Loan? Step-by-Step Recovery Guide | Bad Credit Home Loans Sydney.
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