Financial Approval Tips: Essential Tips to Get Your Bank Loan Approved

Banks have gotten tougher lately. I read that loan rejection rates jumped to 40% this year! After the Royal Commission, they’re asking way more questions and their credit criteria is getting stricter. So what can you do to make sure your loan gets approved? Here’s what I’ve learned works best for financial approval.

1. You Should Keep Your Deposit in One Place

I’ve seen this mistake countless times. People save their deposit in their parents’ account because they don’t trust themselves with the money. Big mistake! Banks want to see YOUR savings history, and when it’s in someone else’s name, they won’t count it as yours.

You need to keep that money in your account for at least three months before applying. And be careful about moving money around! It’s fine between your own accounts, but banks will question transfers over $5,000.

They get suspicious if you’re constantly moving money between your account and your partner’s account. They’ll wonder if someone gave you that money as a gift, and that can mess up your approval chances.

The Gift Deposit Dilemma

If you are getting help from family, there’s a right way to do it. I had clients last month who got a $50,000 gift from their parents. The bank wanted a statutory declaration confirming it was a gift with no repayment expectations. Plus, they still wanted to see some genuine savings from the borrowers themselves.

Bottom line: If you’re getting a gift, be upfront about it, get it documented properly, and make sure you’ve still got some of your own savings to show the bank you can actually save money.

2. Your Spending Habits

This is huge. Banks are literally going through your last 3-4 months of transactions. And not just your everyday account – they’re checking your credit cards, personal loans, everything!

If you’re spending too much on UberEats or placing bets on the weekend, they’ll notice. They count all that as living expenses, and higher living expenses mean they’ll lend you less money. You need at least 3-4 months of clean history, especially with gambling.

Also, make sure your accounts don’t get overdrawn! I saw one application get rejected yesterday because an insurance payment bounced. The person had plenty of savings in their attached account, but they forgot to transfer enough to their everyday account. The bank just said no – why would they give you half a million dollars if you can’t manage your day-to-day account?

How Banks Calculate Your Living Expenses

This is something most people don’t realize. Banks don’t just take your word for what your expenses are – they check your statements line by line. I had a client tell me she spent about $2,500 a month on living expenses. When the bank analyzed her statements, they found she was actually spending closer to $4,000!

Banks group expenses into categories like:

• Groceries and food
• Transport (fuel, public transport, car maintenance)
• Entertainment (restaurants, movies, subscriptions)
• Shopping (clothes, electronics, household items)
• Regular bills (phone, internet, insurance)

They’ll take the highest spending month from your statements and use that as your baseline. So if you had one month where you bought a new TV and went on a shopping spree, that’s the figure they’ll use.

Trim your spending for at least 3 months before applying. Cancel subscriptions you don’t use, cut back on takeout, and avoid any luxury purchases. I’m not saying live like a monk, but be conscious that every dollar you spend could affect how much you can borrow.

3. Credit Score

Most people have no idea what their credit score is, but it’s super important. You can get one free credit report each year from Equifax (just Google “my credit score”).

Your score needs to be above 650, otherwise it gets really challenging to get approved. Watch out for things that drag down your score:

• Too many credit applications
• High credit limits
• Applications for those buy-now-pay-later services like Zip and Afterpay

Also, Australia introduced positive credit reporting in the last year. This means banks can see if you’ve been making payments on time for all your debts. Even if they don’t see your statements, they’ll see on your credit file if you missed payments. So make sure everything’s up to date!

What Destroys Your Credit Score

I havve seen people wreck their credit scores without even realizing it. One client had a score of just 580 because of a $45 phone bill from three years ago that went to collections when she moved houses and didn’t update her address.

Another credit killer is maxing out your credit cards. Even if you pay them off in full each month, having cards that are constantly at their limit will hurt your score. I recommend keeping your usage below 30% of your limit.

Also, you should be careful with those “interest-free” store cards. Every time you apply for one, it creates a hard inquiry on your credit file. I had a client who bought furniture, electronics, and appliances for his new home all on different store cards, and his score dropped 85 points in two months!

If your score is low, take steps to improve it before applying:

• Pay down existing debts
• Lower your credit card limits
• Don’t apply for any new credit
• Set up automatic payments so you never miss a bill

Give yourself at least 3-6 months to see improvements. For serious issues like defaults, you might need to wait longer and potentially provide a written explanation to the bank.

4. Don’t Change Jobs If Possible

This seems obvious, but I see people make this mistake all the time. Changing industries is especially bad.

Even if you’re getting a promotion at a new company, many banks want to see history in your role – anywhere from 1-2 pay slips to 3 months depending on the bank.

I was helping a guy named Joel yesterday with his pre-approval. He’d been in his job for over two years, which was perfect, but then he told me he might get a new job in the next 2-3 weeks. That’s a problem because even if we get pre-approval now while he’s in his old job, when he finds a property in two months and he’s in his new job, some banks will reject him outright because he’s on probation. They want at least six months in a job.

Some banks are more flexible than others, but it’s important to know this upfront because it can totally derail your finance plans.

The Employment Hierarchy

Not all jobs are created equal in a bank’s eyes. Here’s how they typically rank employment types:

1. Permanent full-time – The gold standard. If you’ve been in the same job for 2+ years, you’re in great shape.
2. Permanent part-time – Generally acceptable if you’ve been there at least 6 months, but they’ll only count the lower income.
3. Casual employment – Much harder. Most banks want to see 12+ months of consistent income, and they’ll often discount your income by 20% to account for instability.
4. Self-employed – The toughest category. You’ll need at least two years of tax returns, and banks typically use the lower of your last two years’ income, not the average.

I had a client who was a contractor earning $150,000 a year, but because he’d only been contracting for 10 months, we had to use his previous permanent job income of $85,000 for the application. That cut his borrowing power by almost $300,000!

If you’re planning a career change, try to time it so you apply for your loan after you’ve been in the new role for at least 6 months. And if you’re going from permanent to contract or self-employed, consider applying before you make the switch.

5. Make Sure the Bank Likes Your Property

Not all properties are equal in a bank’s eyes. Here are some they typically don’t like:

• Anything under 40 square meters (like studio apartments without separate kitchen/bedroom)
• Certain postcodes (both inner city and some outer areas)
• Properties with large acreage

If you find a property you love, check with your mortgage broker first to make sure it’s one banks will approve.

Problem Properties: Real World Examples

I’ve seen some nightmare scenarios with property types. One couple fell in love with a cute studio apartment in the city – perfect location, great price at $320,000. They put down a deposit before talking to me, only to discover no major bank would finance it because it was only 38 square meters.

Another client found a beautiful 5-acre property with a house and separate granny flat. The bank wouldn’t count the rental income from the granny flat because it didn’t have council approval. That dropped their borrowing capacity by $50,000 – enough to kill the deal.

Here are some other property types that often cause problems:

• Company title apartments (instead of strata title)
• Properties in high-density apartment blocks
• Properties in mining towns
• Heritage-listed buildings that may need special repairs
• Properties with structural issues
• Unusual construction (mud brick, straw bale, etc.)

Always get your finance pre-approved with the specific property in mind. Just because you’re approved to borrow $600,000 doesn’t mean the bank will lend you that amount for any $600,000 property.

6. Understand Debt-to-Income Ratio

This is something that’s become super important in the last couple of years. Banks now look closely at your DTI (debt-to-income ratio), which is all your debts divided by your annual income.

Most banks have a maximum DTI of 6, meaning your total debts (including the new loan) can’t be more than 6 times your annual income. Some have even stricter limits of 4.5 or 5.

I had clients, a couple earning $180,000 combined, who wanted to borrow $950,000 for their dream home. Their DTI would have been 5.3 – technically under the limit, but once we added their car loan and a small personal loan, it pushed them over 6 and the bank declined them.

If your DTI is too high, you have three options:

1. Increase your deposit to reduce the loan amount
2. Pay off other debts first
3. Look for a cheaper property

The best strategy is often paying off car loans, personal loans, and credit cards before applying for a mortgage. Every $10,000 in debt you clear can improve your borrowing capacity by $50,000-$60,000.

7. Get Your Documentation Ready

Banks love paperwork, and being prepared can make a huge difference. Having everything ready before you apply shows you’re organized and serious.

Here’s what you’ll typically need:

• 3 months of pay slips
• Last 2 years’ tax returns (if self-employed)
• 3 months of bank statements for all accounts
• 3 months of statements for all existing loans and credit cards
• ID documents (passport, driver’s license)
• Proof of address (utility bills)
• If you own other properties, council rates notices

I had one client who was super organized – she created a folder with every document perfectly labeled and ordered. Her application was approved in 3 days. Another client took weeks to gather everything, sending documents one by one, and his approval took over a month.

Make it easy for the bank to say yes by being prepared. It shows you’re the kind of organized person who will make mortgage payments on time.

Don’t Make Multiple Applications

Each application affects your credit score. Plus, banks talk to each other! If you get knocked back by one bank and apply to another, they’ll find out why you were rejected the first time.

Don’t do pre-approvals with multiple banks to see which one gives you the best rate or fastest approval. Stick with one lender because the more applications you make, the lower your chances of getting approved.

Strategic Application Timing

There’s also a strategy to when you should apply. I always tell clients to avoid applying in June (end of financial year) and December (Christmas rush) if possible. The banks are swamped during these times, and your application can get stuck in a backlog.

The ideal time is often February-April or August-October when approval times are typically faster. If you’re buying at auction, allow at least 3-4 weeks for finance approval to be safe.

Conclusion

The lending landscape is more complex than ever. What worked for your parents 20 years ago probably won’t work today. Rules change constantly, and different banks have different policies.

A good mortgage broker can save you thousands in interest and help you avoid the pitfalls I’ve outlined above. They know which banks will be most likely to approve your specific situation and can guide you through the process.

I’ve seen too many people get rejected simply because they applied to the wrong bank or didn’t present their application in the best light. Don’t be one of them!

Follow these tips and you’ll give yourself the best shot at getting your finance approved in today’s tough lending environment. I’ve seen these strategies work time and again for successful borrowers.