HOME OWNERSHIP HURDLES

WHAT TO DO IF YOUR HOME LOAN APPLICATION IS REJECTED With lowered interest rates and motivated sellers, homeownership has never been more attainable. However, very few of us are able to finance the purchase without the help of a home loan.

ooba Home Loans repor ted that 80.7% of its applicants successfully obtained home loan finance in the first quarter of 2021, but 15% of its applicants were rejected due to a lack of affordability and a poor credit score. Of these rejected homeownership hopefuls, a staggering 44% were rejected by their own banks.

This has resulted in many applicants feeling despondent and thinking that their journey to homeownership has automatically been brought to a premature ending.

BUSTING THE PERSONAL BANK MYTH

Not so, explains Rhys Dyer, CEO of ooba Home Loans: “When applying for a home loan, you’d assume that your first stop would be applying to your own bank directly. After all, you’ve probably got a great relationship with them, and they’re normally your first point-of-call. However, the banks’ lending criteria are regulated by the National Credit Act, and therefore, there is no guarantee that they will be able to approve your home loan. Based on this, we recommend spreading your risk by making use of a home loan comparison service to increase your chances of being approved – all at the best possible interest rate.”

A home loan comparison service will apply to multiple banks on your behalf. “From our own experience, we’ve successfully secured home loan financing for about two in every four applications that their own banks initially turned down. This is because each bank makes use of a different scorecard (or lending criteria) when evaluating an application,” Dyer adds.

REASONS FOR REJECTION AND NEXT STEPS

First and foremost, a rejected applicant must take action to improve their financial health. When banks assess whether to approve a home loan, their first step is to check your credit score. “A poor credit score is the most common reason for rejection. Luckily, there are steps that you can take to improve your standing before applying again,” says Dyer.

If your credit score is rated poor (below 600), Dyer advises that you obtain a copy of your credit report from the credit bureau. “If you identify errors on your credit report, the credit bureau should be notified of these, and you should

then take the necessary action to rectify the information displayed on the report. This will entail engaging with the credit provider who has provided the credit bureau with incorrect data.”

On the other hand,“if the information is correct and your poor credit score is the result of an impaired credit record due to bad debts or having no credit history whatsoever, further action will need to be taken,” Dyer explains.

WAYS TO IMPROVE YOUR CREDIT SCORE

If your poor credit score is due to a lack of credit history, meaning that you have no record of taking out and paying back a loan, you should begin by opening small retail accounts or a cell phone contract.These debts should be paid back on time and in full (if not a bit extra) each month.

If you have a low credit score due to an impaired credit record, you will need to try and settle your debt as quickly as possible. Dyer recommends the following tips to help bolster your credit score:

• Pay your bills on time.

• Settle and close accounts.

• Pay more than the minimum instalments on existing debts. • Avoid applying for additional credit over this period.

“If you’re applying for a home loan alongside a partner or are married in community of property, then your partner will need to follow the same steps,” he adds. “Once you have started the credit rehabilitation process, you should continue to check your credit score every three to six months and make the necessary adjustments,” says Dyer.

Dyer’s final advice is to work alongside a trusted home loan comparison service. “Before starting the home loan journey, find a trustworthy service provider, know your credit score and obtain a prequalification certificate.This will give you a good indication of what you can afford and if you’re potentially eligible for a loan.”