If Your Home Loan is Turned Down, …
In this article, you will find some common problems that may cause financiers to reject your home mortgage application and suggestions to resolve these issues. But this is not an exhaustive guide of the factors for non-approval nor does it promise sure-work solutions that will improve your chances of getting a home loan. Thus you may prefer some professional advice from a mortgage consultant to assess your financial condition.
Reasons for rejection
1. Poor credit standing
Most financiers will suss out the credit history of borrowers before granting a home mortgage. Do note that the repayment history, like default and late repayment, on most of your credit facilities are recorded by the Credit Bureau (Singapore), and released to credit providers on the Bureau.
Even records for closed accounts are kept. Any closed account, with defaults in payment, that comes with the status of full or negotiated settlement will be shown in your credit report for 3 years from the date of settlement.
Financiers consider your past repayment history as an indicator of future behaviour. If you have a poor credit score, financiers will be more cautious in lending. Even if they do lend, the loan quantum may be smaller.
2. High DSR (debt-to-service ratio)
DSR = Monthly Debt Service / Monthly Gross Household Income
Before loan approval, the financing institution will study your total outstanding financial liabilities and income level, to see if you have the means to service all your debts.
An excessively high DSR will almost certainly lead to rejection.
With the latest cooling measures on 12 January 2013, the mortgage serving ratio (MSR) is capped at 30% of a borrower’s gross monthly income for loans by private banks, and 35% for HDB concessionary loans. Previously for HDB concessionary loans, the MSR was 40%, and for private loans there were no cap.
3. Employment history
If you are a fresh graduate who has only started work for a short time, you can be rejected because you have not demonstrated stable income-generating ability. Financiers take long-term stable employment, usually two years, as proof of payment ability.
4. Short reminding lease
A mortgage loan is secured against the property. The property is the collateral, whereby in the event of a default, the financiers will foreclose the mortgage. If the property you wish to purchase has a short reminding lease, it cannot be sold for much hence the financing institutions may not be able to recover all the loan disbursed.
5. Low valuation
Any factors that will seriously depreciate the valuation of your property can result in loan rejection.
The house could be sitting on an undesirable location, in a dilapidated building, or in a location affected by future planning.
How to obtain an approval?
1. Improve credit standing
Pay off any defaults and make prompt payments from now on. This will help to pull up your credit score. To read more about credit score, you can browse “Tips to Make Your Mortgage Financing a Breeze”.
2. Longer loan tenure and lower loan quantum
Stretch your loan tenure and reduce the borrowing amount, this will reduce the monthly installment repayments, and lower the DSR.
3. Use a different lender
Some lenders may have more lenient borrowing requirements.
4. Get a guarantor
In the event of a default, the financing institution can hold the guarantor accountable for the loan repayment.
5. Combine incomes
Apply for the loan with someone who is working and drawing a salary. For instance, your spouse or a close relative. The financier will have greater confidence of loan repayment as there is now a higher income.
Whatever the factors affecting loan approval, remember that at the end of the day, the financiers just want to ascertain that you have the ability to make prompt repayments.
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