The Bank Said No Because of My Income

When a bank declines a mortgage application due to insufficient income, it's often called hitting the "income hurdle"-one of three standard lending checks alongside equity and credit assessments.

Why Banks Decline Based on Income

Banks apply conservative formulas when evaluating borrowing capacity. Key factors include:

• •Mortgage repayments are stress-tested at approximately 8.5% interest rates
• •KiwiSaver contributions reduce usable income
• •Credit card limits (not balances) factor into calculations
• •Dependent expenses and vehicle costs are assumed
• •Rental income receives a 25% reduction allowance for vacancies and maintenance

The result: borrowing power can vary by over $150,000 between different lenders.

Actionable Solutions

Quick Wins:

• •Reduce unused credit card limits
• •Obtain a rental property assessment from professionals
• •Take in a boarder (banks typically allow $150-$200 weekly, up to two people)
• •Clear final payments on student loans or hire purchases
• •Review and increase rents on existing properties
• •Sell unused vehicles

Income Improvements:

• •Request a wage increase-even modest raises significantly impact lending calculations

Alternative Lending:

Non-bank lenders may approve applications based on property strength rather than income servicing. However, expect higher rates (10-18%), additional fees (2-3%), and an exit strategy to refinance within 2-3 years.

What to Avoid:

Bringing in a co-borrower "for convenience" typically fails. Banks view such arrangements skeptically without clear legal structure or ownership.

Next Steps

Borrowers declined for income should: determine how far they fall short, address manageable issues first, and consider short-term non-bank solutions with refinancing plans back to mainstream lenders.