Applying for a home loan is one of the biggest financial steps you’ll take, and while it’s exciting, it can also be unexpectedly stressful. In fact, over 1 in 5 home loan applications in Australia are rejected, often due to simple, avoidable issues borrowers didn’t even realise were a problem.
So what went wrong?
Most of the time, it’s not about how much you earn or even how much you’re borrowing. It’s about the red flags hidden in your financial profile, signals that lenders view as risks, and often go unnoticed by borrowers. To better understand the approval process, check out our Home Loan Approval Checklist that outlines everything you need before you apply.
At Stryve Finance, we help clients identify and fix those red flags before they derail their mortgage dreams. Whether it’s a low credit score, inconsistent income, or a high debt-to-income ratio, the good news is: many of these issues are preventable or fixable — if you know what to look for.
In this guide, we’ll walk you through the most common reasons why home loans get rejected in Australia, what lenders are looking for, and how to position yourself for fast, stress-free approval.
Why Do Lenders Reject Home Loans?
Before diving into the specific red flags, it’s important to understand how lenders decide about your home loan application.
What Impacts Your Borrowing Power Most?
When you apply for a mortgage, banks and lenders assess your financial profile based on one core question:
“Can this person reliably repay the loan now and in the future?”
To answer that, lenders conduct what’s called a credit risk assessment, weighing factors like:
- Your income and employment stability
- Existing debts and liabilities
- Spending habits and lifestyle
- Credit score and repayment history
- Savings and deposit size
- The value and condition of the property
Every lender has their own criteria but must comply with ASIC’s Responsible Lending Guidelines. That means they must be confident you can afford the loan without hardship.
Here’s the problem: even if you feel financially ready, a few missteps in your banking history or paperwork can raise red flags that put your application at risk.
Some red flags can lead to outright mortgage rejection, while others may result in lower borrowing power, tighter terms, or the need for a larger deposit. Either way, it pays to spot the issues early before the banks do. For example, a missed credit card payment might reduce your borrowing capacity, while an undisclosed debt could lead to a full rejection.
In the next section, we’ll discuss the most common red flags lenders see and what you can do to avoid them.
10 Biggest Red Flags That Can Derail Your Home Loan Approval
Understanding what can go wrong is the first step to getting it right. Whether you’re a first-time home buyer or refinancing an existing property, watch out for these common red flags lenders view as signs of risk.
Each of these issues can impact your borrowing capacity, delay your approval, or even result in a declined application, but with the right strategy, most can be resolved.
1. Low Credit Score or Poor Credit History
A low credit score is one of the first things lenders flag when reviewing your application. Defaults, late payments, missed bills, or even too many credit enquiries can hurt your chances of approval.
Even if you’ve never missed a major payment, things like buy-now-pay-later services, unpaid utility bills, or credit card overuse can damage your credit score.
How to avoid this red flag:
- Check your credit score (free with Equifax or Illion)
- Dispute any incorrect listings
- Pay down existing debts
- Avoid applying for new credit before your home loan
Need help improving your credit profile? Read our guide to fixing your credit score before applying for a home loan.
2. Unstable Employment or Irregular Income
Lenders prefer borrowers with stable, full-time employment. If you’ve just started a new job, are on probation, or frequently change employers, it could raise concerns, especially if you’re self-employed or a contractor.
How to avoid this red flag:
- Stay in the same job for at least 6–12 months, if possible
- Self-employed? Prepare 2 years of tax returns + BAS
- Provide consistent payslips or employment contracts
- Avoid career changes right before applying
If you’re self-employed, our Home Loans for Self-Employed Borrowers article breaks down the documentation and lender options available to you.
3. High Debt-to-Income (DTI) Ratio
Your DTI ratio compares your monthly debt obligations to your gross monthly income. If this number is too high, it tells lenders you might be financially stretched even if you have a good income.
Most lenders prefer a DTI ratio below 6x your income, although this varies by lender.
How to avoid this red flag:
- Pay off personal loans, car finance, and credit cards
- Reduce credit card limits (even unused ones)
- Consider consolidating high-interest debts
- Avoid taking on new debts close to applying for a loan
Use our Borrowing Power Calculator to get a quick estimate based on your income, expenses, and existing debts.
4. No Genuine Savings
Lenders want genuine savings, money you’ve saved over time through consistent deposits. It shows financial discipline and lowers the lender’s risk.
If your deposit is a cash gift, a short-term windfall, or borrowed, it may not meet the genuine savings criteria.
How to avoid this red flag:
- Set up a dedicated savings account
- Save regularly for at least 3–6 months
- Keep documentation for any gifted funds
- Build at least 5% of the purchase price in genuine savings
5. Overuse of Credit Cards or Buy-Now-Pay-Later Services
Even if you’re not carrying a balance, high credit card limits and frequent use of BNPL services like Afterpay or Zip can impact your borrowing power. Lenders view them as liabilities that reduce your ability to repay a loan.
How to avoid this red flag:
- Cancel unused cards
- Reduce credit card limits to the minimum you need
- Pause BNPL usage at least 3 months before applying
- Maintain low credit utilisation (below 30%)
6. Large or Unexplained Deposits
Lenders are legally required to comply with anti-money laundering (AML) laws, which means they must verify the source of your deposit funds. If your account shows large, unverified cash deposits, this can delay or derail your home loan approval.
Even gifts from family members can trigger red flags if they aren’t properly documented.
How to avoid this red flag:
- Keep clear records of all deposit sources (e.g. car sale, bonus, inheritance)
- Ask family to complete a gift letter if they’re helping with your deposit
- Avoid transferring large cash amounts between accounts at the last minute
- Ensure all deposit funds are visible and traceable for at least 3 months
7. Inconsistent or Excessive Spending Habits
Yes, lenders will go through your bank statements. They’re not just looking at what you earn, but how you live. Frequent gambling transactions, excessive Uber Eats, or overdraft fees can all paint a picture of poor money management.
Spending your entire paycheck with no buffer for emergencies may suggest that you’re not ready for the financial responsibility of a mortgage.
How to avoid this red flag:
- Trim non-essential spending at least 3 months before applying
- Avoid overdrawing your account
- Cut down on discretionary expenses like streaming, dining out, or Afterpay
- Show a consistent cash surplus each month
8. Undisclosed Debts (Including HECS/HELP Loans)
Hiding debts — intentionally or not — is one of the fastest ways to lose credibility with a lender. Unused credit cards, personal loans, and student debt, like HECS/HELP, count against your borrowing capacity. You can check your current balance through the myGov ATO portal.
Some borrowers assume that if a loan is not “active,” it doesn’t need to be disclosed. That’s a costly mistake.
How to avoid this red flag:
- Disclose all debts, including HECS/HELP and buy-now-pay-later services
- Cancel unused credit cards to improve your serviceability
- Review your credit report to see what’s listed under your name
- Use a broker to calculate your real borrowing power
9. Property Valuation Shortfall
Your property must still pass the bank’s valuation test even if approved as a borrower. If the lender’s valuer decides the property is worth less than your purchase price, you may need to contribute a larger deposit or face rejection.
This is especially common in off-the-plan purchases or when buying at the peak of a hot market.
How to avoid this red flag:
- Get a preliminary valuation before you commit to a contract
- Avoid overpaying or buying emotionally
- Work with a broker who can match you to lenders with favourable valuer panels
- Ensure the property is in a condition that meets lending standards
10. Incomplete or Inaccurate Application
One of the most preventable, yet damaging, red flags is submitting an application that is missing key documents or containing incorrect information.
Whether you forget a payslip, under-report your expenses, or provide inconsistent details, these gaps can signal carelessness or, worse, dishonesty.
How to avoid this red flag:
- Use a mortgage broker to guide your application and check for errors
- Prepare all required documents in advance (ID, payslips, bank statements, tax returns)
- Be honest and accurate, never guess your income or expenses
- Review your application thoroughly before submission
What Lenders Really Want to See (Checklist for Approval)
Now that you know what can derail your mortgage application, let’s flip the script and look at what gets your loan across the line.
Lenders aren’t just looking for “perfect” borrowers — they’re looking for consistency, transparency, and the ability to comfortably repay your home loan without stress. Here’s a breakdown of the core things lenders love to see:
- Stable Employment History: At least 6–12 months in the same job or consistent income history, especially for self-employed applicants.
- Proven Genuine Savings: A savings record over 3+ months showing discipline, not just a one-off deposit or gift.
- Low Debt-to-Income Ratio: Minimal existing debt and a manageable repayment load compared to your income.
- Clean and Consistent Bank Statements: No overdrafts, gambling, or erratic spending in the last 3–6 months.
- Solid Credit Score and History: Preferably 650+ with no recent defaults, missed payments, or excessive credit applications.
- Accurate and Complete Documentation: Provide all necessary documents, including payslips, bank statements, ID, tax returns (if self-employed), and debt disclosures.
- Professional Support (Like a Mortgage Broker): Working with a mortgage broker helps you avoid mistakes, match with the right lender, and maximise your chances of approval.
When your application shows steady income, consistent savings, and minimal debt, you become a low-risk, high-trust borrower — the kind banks are eager to approve.
Pro Tip: Most people have one or two minor red flags. That’s normal. The key is to get ahead of them, and that’s exactly what we do for our clients at Stryve Finance.
How to Fix or Prevent Red Flags Before Applying
The good news? Most home loan red flags aren’t permanent problems but temporary hurdles.
With the right preparation (and a good broker), you can turn a high-risk profile into a clean approval.
Here’s how to clean up your application before it hits a lender’s desk:
- Check Your Credit File First, Not Last: Review your credit report early to catch and correct any errors, defaults, or unnecessary enquiries before lenders see them.
- Close or Reduce Unused Credit Limits: Lower your credit card limits and cancel unused cards to improve your borrowing power and reduce debt risk.
- Build Genuine Savings: Show consistent savings over 3–6 months to prove financial discipline, not just a one-off deposit.
- Reduce Your Debt-to-Income Ratio (DTI): Pay off personal loans, credit cards, and other debts to boost approval odds and increase affordability. Use our Loan Repayment Calculator to see how different loan sizes and interest rates affect your monthly budget.
- Work With a Mortgage Broker Early: A broker helps you identify red flags early, match with the right lenders, and submit a clean, complete application that gets approved faster.
How Stryve Finance Can Help You Navigate Home Loan Approval
When getting a home loan approved, especially if you’ve had financial hiccups, complex income, or past rejections, strategy matters as much as the numbers.
That’s where Stryve Finance comes in.
As mortgage brokers, we don’t just submit applications; we act as your home loan strategist, ensuring everything is structured, explained, and aligned with lenders’ needs.
Here’s how we help you move from red flag to green light:
We Spot Red Flags Before the Banks Do
Most borrowers don’t realise that something as small as an unused credit card or inconsistent income history can trigger a decline until it’s too late. We identify and fix:
- Risky spending habits on bank statements
- Overexposed debt-to-income ratios
- Credit file issues or errors
- Missing documents or inconsistencies
We Match You With the Right Lender
Every bank has its own rules. What one lender rejects, another might approve, especially for:
- Self-employed borrowers
- Contractors, casual workers, or freelancers
- Clients with HECS debt or family guarantees
- Borrowers with smaller deposits or complex income
We use our lender panel and inside knowledge to match you with the best fit, not just the biggest name.
We Do the Legwork (So You Don’t Have To)
Chasing paperwork, getting inconsistent answers, and having to repeat your financial history multiple times are just a few of the frustrations we remove for our clients, but they don’t have to be. At Stryve, we handle:
- All application paperwork
- Direct communication with the lender
- Pre-assessments to test borrowing power
- Support if additional documentation is requested
We Give You Clear, Honest Advice
No fluff. No pressure. Just straight-up guidance to help you:
- Understand your borrowing capacity
- Maximise your loan approval odds
- Choose the right product, term, and rate for your goal
- Buy with confidence, not confusion
Whether you’re buying your first home, refinancing, or bouncing back from a loan rejection, we’re here to help.
Book a free home loan consultation. Or contact us for a quick pre-assessment, no obligations, just real answers.
Ready to Get Approved Without the Stress?
Whether you’re just starting your home loan journey or recovering from a past rejection, you don’t have to navigate it alone.
At Stryve Finance, we help you:
- Spot and fix red flags before the banks do
- Maximise your borrowing power
- Get matched with the right lender for your profile
- Make confident, informed decisions, every step of the way
Don’t let avoidable mistakes cost you your dream home.
Book your FREE Home Loan Assessment today
Let’s review your finances, address any red flags, and build a clear path to approval — no obligations, just expert guidance.
Dylan Bertovic is the Director and Senior Finance Broker at Stryve Finance, specialising in non-traditional lending solutions. He helps clients across Australia with tiny home loans, construction finance, equipment and asset lending, refinancing, and investor loans. With deep expertise in self-employed and renovation mortgages, Dylan is known for crafting tailored strategies that get results
