Did your housing loan application get rejected? Was it because of your current bank balance or because you seemed nervous during the meeting? Don’t know?
Imagine walking into a bank, applying for a loan, and getting it sanctioned then and there. Such a scenario is no less than a fantasy. Rejections are a common scene when it comes to housing loans. Home loan procedures are complex and often leave an applicant confused over the reason behind the rejection.
Instead of getting disappointed, rejections can be taken as a learning experience, especially if you are a first-timer. After all, a denial once does not mean every time your application will be rejected. A rejected application usually highlights what officials look at along with the shortcomings in your financial planning.
Understanding these reasons behind home loan rejection can help you revamp your strategy and bank upon a house soon.
You Have A Bad Credit Rating
You have sufficient money, a good income, and enough savings. Then, why did your loan application get rejected? Maybe you overlooked the two restructured loans or your overdue credit card bills. Credit history or your record of repaying debts is one of the most important things that get considered when you apply for a loan. You may have enough money, but if your repayment record is against you, then it can lead to a rejection. Credit reports not only show your financial history but your willingness to fulfill payments. Ever heard of customers who have a good bank balance but keep delaying or defaulting payments? Right from delayed payments to defaulted ones, all are checked through a credit score.
Banks use the credit report from the Credit Bureau of Singapore. It shows your debt history along with your credit score. If there are any defaults or delayed payments, however old, it can leave you with rejection. A good credit score of 740 and above can get you the loan, but a grade below that can make it difficult.
You can get the report for a fee and evaluate the same before reapplying for a loan. If there are any glitches, rectify it and make full payments for at least a year and then reapply for a loan.
Increased Liability But Little Income
It is common knowledge that banks will not lend to people who have a long list of financial commitments and little income to fulfill it. Total debt servicing ratio is one of the important calculations that banks look at when lending money. It’s the part of your monthly income that goes into servicing loans and other financial commitments. 60% is the threshold set for TDSR. If the calculation exceeds the number, you will have to face rejection.
However, the percentage may not work appropriately for small income numbers, rendering them ineligible for even a small loan amount. The problem occurs when you earn a good amount yet are unable to fulfill your debts. While this was for bank loans, those applying for HDB loans need to pass a mortgage servicing ratio (MSR) along with the TDSR. The threshold for MSR is 30%. Settling some of your financial commitments, opting for longer tenure loans, or showing more funds and liquid assets in your documents could be a good way to pass these criteria.
Self Employed Or Have An Unstable Income
Is self-employment or an unstable income the reason behind your loan application rejection? For those who are freelancing or are in between jobs with no stable source of income, chances to fail the TDSR are high and hence rejection. If you are employed individuals, the computerised pay slips of the last 3 months, the latest 12-15 months CPF contribution history, and the latest notice of assessment are required. For those who are freelancing or in between jobs, may not be able to provide them. Wait until you secure a job before reapplying for a loan. As a freelancer, you may ask your client to put you on a payroll. However, there is no guarantee that they will do so. Showing some other source of income like rental may help.
Self-employed and rental income also has the haircut of 30%. This means that the banks only recognise 70 percent of this income, making it difficult to pass the TDSR. Since the banks assess TDSR for self-employed individuals through their notice of assessment, it is best to accurately list your income. If you plan to show your rental income, then make sure the agreement has a 6-month validity remaining.
You Made Too Many Credit Enquiries
Have you been seeking credit from various financial institutions? Then you can be termed as credit hungry by banks. And, this may not work in your favour, as the loan application can be rejected. This act may lower your credit score and raise suspicions in the minds of officials. Are you going bankrupt or maybe you are involved in a legal battle? Banks usually get nervous because they are suspicious as to why you need so much money suddenly. Such suspicions may raise questions about your ability to repay the home loan. As a result, you face a denial. While some banks may close an eye on this, others will either reject your loan request or ask you to go for a lower loan amount. It is best to not get involved in too many credits during the year you plan to apply for a housing loan.
If you were denied a loan, it could be because of any of these reasons behind home loan rejection. Keeping these in mind before reapplying for a loan can be beneficial. If you are someone who is planning to take a home loan, then make sure you strategize with these points in mind.
If you plan to sale of your existing property then purchase a new property except for housing loan you may apply bridging loan from a licensed moneylender. We are a Top Money Lender Directory that can help you to find out the top legal moneylender that closer with you. You can read the reviews of each money lender, therefore give you an opinion to choose the best legal moneylender. Moreover, you are able to write your valuable comment and reviews for any moneylender for everybody as a reference.