How to make sure your home loan gets the green light
You have found your ideal home and applied for a bond, only to have your hopes dashed by the sobering words, 'Home loan application declined'.
Being declined is a hard blow, but it does not have to be the end of your homebuying journey. Carl Coetzee, CEO of BetterBond, says approaching a bond originator who will help with pre-approval and apply to multiple banks on your behalf, will help you avoid this scenario, 'There are several reasons why a home loan application may be turned down, so find out why you have been declined so that you can be sure of a better result the next time you apply.'
1. If your bond has been declined by a bank because of a poor credit score, get a copy of your credit report from the credit bureau>. Check for any errors so that your report can be updated.
2. You may have a limited credit history. Lenders want to see a track record of borrowing and repaying of credit to know that you will be able to repay your bond
3. Your monthly income may be too low. Make sure that you can meet your monthly repayments - including a bond and other household expenses - and still have money remaining for living costs and other expenses. This is called home loan affordability and forms a very important part of your homebuying journey. You can use our Affordability Calculator to work out what you could afford based on your monthly income and expenses. This will help you see what price range you can consider when looking for a property to buy.
4. You may have a judgment or a legal notice against your name for outstanding debt
5. Having many enquiries from creditors on your credit record could count against you when you apply for a bond. This could be if you have applied for multiple credit cards or loans in a short space of time. However,this does not mean that you should not check your credit score regularly.
6. Late or missed payments, or not making the required payments, all have an adverse effect on your credit profile and further cut your chances of securing a home loan or the best possible deal in terms of the loan-to-value ratio (the size of the loan compared to the value of the property) as well as the interest rate on your home loan.
7. The balances on your existing loans may be too high and the bank could be concerned that you would be unable to meet your monthly home loan repayments.
8. Perhaps the bank has valued your home at less than the loan amount for which you have applied. The bank may ask you to put down a higher deposit to make up the difference with the valuation. The valuation is an indication that the property is worth the price being paid for it. Should a buyer default on their bond repayments, the bank wants to know that it will be able to recover the full value of the loan outstanding by selling the home.
9. Always notify your creditors when you change jobs so that your income information is up to date. Failing to do this could hamper your bond application.
10. Make sure your application contains all the necessary information. Work with a bond originator who will manage the application process for you at no cost. They understand all the banks' lending criteria and can guide you through the process to ensure your home loan application has the best possible chance of success.
Coetzee says you have a better chance of securing a bond by working with a bond originator. 'By getting pre-approved for your home loan first you know of any red flags with your credit score, or you find out early in your homebuying whether you need more information about your income, especially if you are self-employed.' He adds, 'A home loan pre-approval gives you a good idea of what you can spend and means that you can make a firm offer to purchase (OTP) when you are ready to buy.'
Working with a bond originator also improves your chances of securing a bond. 'Currently 90% of the pre-approved applications BetterBond submits to banks on a buyer's behalf are approved, compared with the open-market rate which is around 35%,' says Coetzee. BetterBond can also secure a preferential interest rate as the banks compete to offer you the best deal. The average interest rate concession that BetterBond gets when applying to four banks is minus 0.61%, which, at a prime lending rate of 7%, brings the interest rate down to 6.39%. This means a total saving of R173 700 on a R2 million bond over the typical 20-year term.
Coetzee concludes: 'It is important that you know your credit status before you start thinking about buying a home and applying for a bond. Once you know your credit score and your home loan affordability, you can move ahead with your home loan application with confidence.