What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Justmoney chats to home loan providers about what your next steps should be.

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“Before determining the next steps you can take, you need to examine the factors that led to the denial,” says Andrew Price, director of MortgageMe.

Price says these may include defaulting on previous loans, having no credit score, for example no previous history of borrowing money and repaying loans, or a high debt-to-income ratio.

There may be other reasons for your home loan application being denied. Therefore, it’s always best to ask your provider for a breakdown of the application.

Price says that once you establish the cause of the denial, you can start taking steps to rectify the situation before re-applying. These steps may include:

1. Access your finances: With the help of the application breakdown and your credit report you should be able to assess your financial situation and identify where you could be going wrong.

“Know what you can afford and don’t exceed your budget. To qualify for a home loan, the bank considers two things: your affordability – to see what you can afford – and your credit score or creditworthiness. Your credit score gives the banks an idea of what you've done with your money in the past – especially the money you’ve borrowed,” adds Marcél du Toit, CEO of Bondspark.

2. Ensure you have the means to repay the loan: After assessing your finances, it’s time to be realistic. This means ensuring you’re financially able to cover the loan for which you’re applying.

“There is no point in applying for a loan when the repayment is beyond your future earning potential,” Price says.

3. Regularly check your credit score: Staying on top of your credit score can assist you to correct potential errors as and when they arise.

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4. Ensure that other debt is consistently being repaid: Cut your expenses where you’re able. Reducing your expenses positions you as a more attractive borrower, says Price.

Don’t skip your monthly repayments on your credit card and other accounts. Play the long game and work towards getting or keeping a good credit score, adds du Toit.

5. Establish if you have any assets of value: This is vital when applying for a secured loan such as a home loan. This is because borrowers want to know whether you have anything of value that could be used as collateral.

6. Increase your deposit: If you’re able to, increase the amount you contribute as a down-payment, says Price. This will both make you more attractive to loan providers as well as lower your repayments.

7. Ask a trusted party to co-sign: Ask a partner or a family member with a stronger credit score to co-sign on the loan with you. This will provide added surety for the provider.

Prequalification for a home loan

Applying for a home loan counts as a hard enquiry on your credit report. This means it’s visible on your credit score to other providers, and it also affects your credit score. For this reason, many opt to make use of bond originators before commencing the application process. This assists with identifying what your chances are of approval beforehand.

“Getting pre-qualification on a bond ensures your chances of being approved are as high as possible. A bond originator works with you to ensure the various documentation is in order and that possible affordability and credit concerns are dealt with upfront to improve chances of bond approval,” adds Carl Coetzee, CEO at BetterBond.

Being denied the first time doesn't mean that your dream home can never be a reality. It simply provides an opportunity for you to get real about your financial situation and do what is necessary to rehabilitate it.

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