If your mortgage application has been refused, that doesn’t mean you will never be able to buy your own home. You shouldn’t take it personally – banks’ lending criteria are regulated by the national credit law and there is never any guarantee that they will be able to approve your home loan.
To improve your chances of getting approved the next time around, you need to understand why your application was denied. Then you need to take the necessary steps to improve your financial situation.
There are several possible reasons for lenders to deny your request. The two most common reasons are that you have an bad credit history and your income is too low.
In some situations, however, other factors may also contribute to the decision. These could include:
- Your employment history – if you have changed jobs often in the past.
- Instability of residence – if you have often moved from one address to another.
- Cash flow or liquidity issues.
Your credit history and credit scores are the main factors that lenders take into account when applying for a loan.. If there are significant negative items on your credit report or other red flags, they may decide that approving your application would put them at too much risk.
Negative things on your credit report that could lead to a denial include:
- Too many recent credit applications.
- No complete credit history.
- High credit card or store card balances.
- Late payments on accounts.
- Collection accounts.
Your application could also be denied if your credit score is below the lender’s minimum requirements. To prevent this from happening again, make sure you know your credit score before applying for a home loan. Then you can search for loans within your credit range.
Your lender may refuse your loan application because your income is too low for two likely reasons:
- First, your income is less than the minimum requirements of the lender. Unfortunately, lenders rarely share this information, so it’s hard to know before you apply if your income is high enough to get a loan.
- Second, your debt-to-income ratio is too high. You can calculate this by dividing your total monthly debt payments by your gross monthly income. For mortgage loan applications, most lenders prefer a ratio of 35% or less. If your ratio is too high, you may have difficulty repaying your bonds.
Improve your chances
To increase your chances of being approved the next time you apply, follow these steps:
– If your credit rating is bad, below 600, you should request a copy of your credit report from the credit bureau. Under the National Credit Act, you are entitled to a free credit report from each of the credit bureaus in South Africa each year. It is a good practice to request your annual credit report even if you are not considering a loan, in order to confirm your financial situation. – If you find any errors on your report, you should notify the credit bureaus to ensure that they take the necessary steps to correct the information displayed on the report. You may also need to contact the credit provider who provided the incorrect data. – If the information is correct and your bad credit is due to a lack of credit history, you need to open one or two small retail accounts or take out a cell phone contract. Make sure you make the required payments to these accounts on time and in full each month. – If your low credit rating is due to unpaid debts, you will need to settle the unpaid debt as quickly as possible. In this case, you should avoid asking for additional credit until your file is clear.
Once you think your credit score is back on track – and before you start looking for a home again – it’s worth applying for a prequalification certificate through a surety or mortgage.
Bond originators make the mortgage approval process easier for applicants. They will assess your financial situation and can tell you whether or not you will qualify for a loan. If you are eligible, they will approach multiple banks on your behalf to get the best loan rates. Otherwise, they will be able to advise you on what remains to be done to increase your chances of success.