Getting a home equity loan sounds simple: you own a home, you have equity, so you tap into it. But not everyone qualifies-even if they think they should. In Australia, lenders aren’t just looking at your home’s value. They’re weighing your whole financial picture. And there are very specific reasons people get turned down. If you’ve been denied or are worried you might be, here’s what actually stops you from getting approved.
You don’t have enough equity
Equity is the part of your home you truly own. It’s the difference between what your home is worth and what you still owe. Most lenders in Australia want you to have at least 20% equity before they’ll even consider a home equity loan. Some will go as low as 15%, but that’s rare. If you owe $400,000 on a $500,000 home, you’ve got $100,000 in equity-that’s 20%. You’re in the ballpark. But if you owe $475,000 on the same house? You’ve only got $25,000 left. That’s 5% equity. No lender will touch that. They need a safety cushion. If home values drop, they need room to cover their risk. If you’re underwater or barely above water, you’re out.
Your credit score is too low
Lenders don’t just look at your income. They look at your history. In Australia, most lenders require a minimum credit score of 650 to 700 for a home equity loan. That’s not the top tier, but it’s not the bottom either. If your score is below 600, you’re almost certainly disqualified. Why? Because lenders see you as high risk. Missed payments, maxed-out credit cards, defaults, or even too many recent credit applications can drag your score down. One missed utility bill or phone payment reported to a credit bureau can hurt. You don’t need perfect credit, but you need clean history. If you’ve had a default in the last two years, lenders will flag you. Even if you paid it off, the record stays for five years.
Your income isn’t stable or enough
It’s not enough to say you earn $80,000 a year. Lenders need to see proof it’s reliable. If you’re on a casual contract, freelance, or gig work, they’ll want at least two years of tax returns or payslips. One year? Not enough. If you’re self-employed, you’ll need to show consistent profit over two financial years. A spike in income last year won’t help if the year before was a loss. Lenders calculate your debt-to-income ratio. If your monthly debt payments (including the new loan) eat up more than 40% of your gross income, you’re over the limit. That means even if you earn $100,000, but you’ve got a car loan, credit card debt, and a personal loan already, you might not qualify. The math just doesn’t work.
You already have too much debt
It’s not just about how much you earn. It’s about how much you owe. Lenders look at your total debt load. If you’ve got $15,000 in credit card debt, $20,000 in personal loans, and a car loan, adding another $100,000 home equity loan pushes your debt-to-income ratio over the edge. Even if your income is solid, lenders see you as over-leveraged. They don’t want you to be one pay cut away from default. In Australia, lenders use the Household Expenditure Measure (HEM) to estimate your living costs. If your expenses are high-say, you’ve got kids, private school fees, or expensive hobbies-they’ll assume you’re already stretched thin. That means even a small loan might be too risky.
Your home isn’t suitable
Not every home qualifies. If your property is on a non-standard title-like a strata title with restrictions, a heritage-listed home, or a property in a high-risk flood zone-you might be turned down. Lenders need to be able to sell your home if you default. If it’s hard to sell, they won’t lend. Rural properties with large land parcels (over 10 hectares) are often excluded. Properties with granny flats, sheds, or unapproved renovations can also be red flags. Even if your home is worth $800,000, if it’s in a remote area with few buyers, lenders will see it as illiquid. They want homes that move quickly in a downturn. If you live in a high-rise apartment with strict body corporate rules, they might still approve you-but only if the building is in good standing and has strong demand.
You’re over the age limit
Age isn’t a direct barrier, but it can be. Most lenders set a maximum age for loan maturity. That means if you’re 65, and you apply for a 15-year loan, they’ll say no because you’d be 80 when it’s paid off. They don’t want to deal with estate issues or potential health-related defaults. Some lenders allow loans to be repaid past retirement age if you have other income-like superannuation or rental income-but that’s rare. If you’re over 60 and want a home equity loan, you’ll need to prove you have a solid retirement income stream. Otherwise, you’ll be pushed toward reverse mortgages instead.
You’ve recently taken out another loan
Lenders check your credit report for recent activity. If you applied for a car loan, personal loan, or even a new credit card in the last 30 to 90 days, you’ll raise a red flag. Multiple credit inquiries in a short time look like financial stress. Even if you were approved for those loans, lenders will worry you’re overextending. They’ll assume you’re trying to cover cash flow problems. If you’ve got a new loan on your credit file, wait at least three months before applying for a home equity loan. It’s not about the loan itself-it’s about the pattern.
Your home is in poor condition
Lenders don’t just care about value. They care about condition. If your roof is leaking, the plumbing is outdated, or the electrical system is unsafe, they’ll require repairs before approving the loan. In some cases, they’ll send out a valuer who’ll note structural issues. If the property doesn’t meet minimum habitability standards, the loan can be pulled. This isn’t about curb appeal. It’s about risk. A home that needs $30,000 in repairs isn’t a secure asset. Lenders won’t lend against a property that could lose value overnight.
You’re in a debt agreement or bankruptcy
If you’re currently in a Part 9 Debt Agreement, a Personal Insolvency Agreement, or you’ve been bankrupt in the last seven years, you’re automatically disqualified. Even if you’ve paid off your debts, the record stays. Lenders treat this as a major red flag. No exceptions. Some lenders may consider you after five years if you’ve rebuilt your credit-but that’s not guaranteed. If you’ve had a bankruptcy, focus on rebuilding your credit first. Pay bills on time. Keep debt low. Wait. It’s not worth trying to force it.
You’re trying to use it for the wrong reason
Lenders don’t care if you want to fund a vacation, pay for a wedding, or buy a new car. But they do care if you’re using it to pay off other high-interest debt. Some lenders will allow it-but only if you can prove you’ve cut spending and won’t run up the debt again. Others outright ban debt consolidation. If you’ve got $50,000 in credit card debt and you’re trying to roll it into a home equity loan, they’ll ask: “Why did you get into debt in the first place?” If you can’t show a clear plan to change your spending habits, they’ll say no. This isn’t about the math. It’s about behavior.
You’ve got a history of defaulting on loans
Even if you paid off a previous home loan early, if you defaulted on it once, lenders remember. A default stays on your credit file for five years. A foreclosure? Seven. Lenders have access to detailed lending history. If you’ve ever missed payments on a loan, had a repossession, or had a loan sent to collections, you’re in the high-risk category. One default can be enough to get you rejected-even if everything else looks perfect. Lenders don’t trust past behavior. They assume it’ll repeat.
What can you do if you’re disqualified?
If you’ve been turned down, don’t give up. Start by checking your credit report. Get a free copy from Equifax or Experian. Look for errors. Fix them. Pay down high-interest debt. Wait six months. Save more. Increase your equity by making extra mortgage payments. Improve your home’s condition. Get a professional valuation. Talk to a mortgage broker who specializes in equity release-they know which lenders are more flexible. Sometimes, a small change-like reducing your credit card limit or delaying a car purchase-can make all the difference. It’s not about luck. It’s about strategy.
Final thought
A home equity loan isn’t a magic fix. It’s a tool-and like any tool, it only works if you’re in the right position to use it. Lenders aren’t trying to be harsh. They’re trying to avoid losses. If you’re disqualified now, it’s not a judgment on your worth. It’s a signal. Fix the underlying issues. Build your financial foundation. Then come back. The loan will still be there.
Can I get a home equity loan if I’m retired?
Yes, but only if you have a reliable income source like superannuation, rental income, or a pension. Most lenders require proof of ongoing income to ensure you can make repayments. If you’re relying solely on savings, you may be better off with a reverse mortgage.
How much equity do I need to qualify?
Most lenders require at least 20% equity. For example, if your home is worth $700,000, you need to owe less than $560,000 on your mortgage. Some lenders may accept 15% equity, but that often comes with higher interest rates and stricter income requirements.
Can I get approved with bad credit?
It’s very difficult. Most lenders require a credit score of at least 650. If your score is below 600, you’ll likely be denied. Your best option is to rebuild your credit first-pay bills on time, reduce credit card balances, and avoid new credit applications for at least six months.
Do I need to have my home appraised?
Yes. Lenders always require a professional valuation to confirm your home’s current market value. This determines how much equity you have. If the valuation comes in lower than expected, your loan amount may be reduced or denied.
Can I use a home equity loan to pay off credit cards?
Some lenders allow it, but many are cautious. They’ll ask why you accumulated the debt and whether you’ve changed your spending habits. If you can’t prove you’ll avoid future debt, they may refuse the loan-even if the math works.