Getting a home loan pre-approval feels like an excellent step on the ladder to property ownership. However, pre-approvals are definitely not a 100% guarantee that your final home loan application will be approved. In fact, there are quite a few reasons that your application might be rejected after pre-approval.

10 reasons your home loan application may be rejected after pre-approval

1. Your financial position has changed

One of the biggest reasons that your home loan application might be rejected after pre-approval is if your financial position has changed for the worse. If so, lenders may see you as more of a repayment risk.

To get comfortable with your financial position, potential lenders will look at your income, savings, debts, obligations and spending habits to see if you’ll be able to make the required repayments. But if any of those things change between your pre-approval and your application, they might reassess whether they feel comfortable with your new financial position.

2. Changes in the regulatory environment

In October 2021 new regulations came into effect which required lenders to stress test your ability to repay a loan before approval. Previously banks were lending large amounts on home loans at very low rates. This meant that when rates rose, there were a lot of home owners who could no longer service their loans. So APRA changed the regulations to require serviceability buffers to increase to at least three percentage points above the loan rate.

This regulatory change impacted a lot of potential homeowners. Regulatory changes in the future could also impact a home loan after pre-approval as well.

3. A change in the wider market

A change in market conditions could mean that banks will change their appetite and policies on lending. For example, if property prices plummeted or interest rates have gone up, any pre-approvals that happened in the interim could be impacted.

When it comes to interest rates, you could consider rate locking. This fixes the interest rate for a specific period of time before your home loan application is complete.

4. Your deposit is too low

If you aren’t able to pull together a full 20% deposit – even if you’re planning on purchasing Lender’s Mortgage Insurance – lenders may see you as a high-risk borrower. Pre-approvals don’t require you to prove you have a full 20% deposit. So if you don’t when the time comes to submit your full loan application, you may find your home loan application rejected.

5. Your credit score has dropped

If your credit score drops between the time of your pre-approval and your loan application, then your application may be rejected. This drop could come from a default on a repayment, overdue repayments or even additional credit or loan applications during that time period.

Once you have a pre-approval in place, you should make sure to be vigilant about making all your repayments strictly on time. You should also avoid making any loan or credit applications during that period.

6. You’ve chosen a risky property

Some lenders don’t like financing certain kinds of ‘high-risk properties’. These are properties which are generally harder to sell, such as studio apartments, properties in flood zones and regional or rural properties.

If you’ve received a pre-approval, but then come to the lender with a home loan application for a property that the lender deems ‘risky’, you may find your application rejected despite your pre-approval.

7. You haven’t completed your application correctly

One of the biggest reasons we see for failed applications is that they haven’t been completed completely or accurately. This is a big problem because if you don’t have these done right, the lender simply won’t approve your loan.

Having a broker on hand to help you complete your paperwork is always a great way to ensure you don’t get rejected for this reason. And be sure to check and double check all your numbers and information on the entire application before submitting it.

8. Your work status has changed

If you’ve gone on maternity or paternity leave (or are about to) or have changed jobs recently, lenders may deny your home loan application despite any pre-approval. This could also happen if your potential retirement is looming.

In each of these cases, lenders may see you as higher risk because your income is no longer stable. They may not feel confident that you’ll be in a strong position to make your repayments.

9. You’ve been given a bad pre-approval

It’s rare, but sometimes lenders could give you a bad pre-approval. They may not have properly reviewed or verified your documents, or there may have been some error in their automated pre-approval systems.

If you’re pre-approval wasn’t accurate initially, this may make it more difficult to meet the lender’s criteria when it comes to your home loan application. And you’re at more of a risk to have your home loan application denied.

10. The lenders’ credit criteria has changed

Regardless of what’s happening in the industry or the economy, sometimes a lender will just decide to tighten up their criteria. In fact, any lender can change their own lending criteria at their own discretion.

If this happens after your pre-approval but before your home loan application is approved, you might find yourself knocked back.

Tips to avoid rejection after pre-approval

While you can’t ever be 100% sure that your loan will be approved, there are some things you can do to avoid rejection after a pre-approval.

• Make sure you’re looking at the right kinds of properties (check with your lender!)
• Don’t change jobs or take extended leave during the period after pre-approval
• Don’t apply for any additional lines of credit or loans
• Be vigilant at making any debt repayments on time
• Make sure you’re completely accurate in your home loan application
• Work on your savings to make sure you have enough deposit in place

We’re here to help

From mortgage brokers to mortgage calculators, your friendly Lending Loop team can help you get the hang of pre-approvals and every other detail surrounding home buying, including refinancing or investing.

With more than 40 of Australia’s biggest banks and specialist lenders at our fingertips we’ve got a lender for your situation. And best of all, we're free! Give us a call today at Lending Loop and let’s get started!