What to do if your mortgage application is rejected


With reduced interest rates and motivated sellers, homeownership has never been more accessible. However, very few of us are able to finance the purchase without the help of a home loan.

And while Ooba Home Loans reports that 80.7% of its applicants successfully secured home loan financing in the first quarter of 2021, 15% of applicants are rejected due to lack of affordability and poor credit rating. credit.

Of those rejected homeowners, up to 42% were rejected by their own bank.

This has led many applicants to feel disheartened and believe that their journey to homeownership is automatically ending prematurely.

The myth of personal banking

“When you apply for a home loan, you would assume that your first stop would be to ask your own bank directly. After all, you probably have a great relationship with them and they are normally your first point of contact, ”said Rhys Dyer, Managing Director of Ooba Home Loans.

“However, banks’ lending criteria are regulated by the national credit law and therefore there is no guarantee that they will be able to approve your home loan. Based on this, we recommend that you spread your risk by using a home loan comparison service to increase your chances of getting approved, all at the best possible interest rate.

A home loan comparison service will apply to multiple banks on your behalf. “In our own experience, we have been successful in securing mortgage financing for about two out of four applications that were initially rejected by their own bank. This is because each bank uses a different scorecard – or loan criteria – when assessing an application, ”Dyer said.

Reasons for rejection and next steps

It is crucial that a rejected candidate take action to improve their financial health, Ooba said.

When banks assess whether to approve a home loan, their first step is to check your credit score. “A bad credit rating is the most common reason for rejection. Fortunately, there are steps you can take to improve your position before you apply again, ”Dyer said.

If your credit score is judged to be poor – below 600, Dyer advises you to obtain a copy of your credit report from the credit bureau.

“If you identify any errors on your credit report, the credit bureau should be notified and you should then take the necessary steps to correct the information displayed on the report. This will involve engaging with the credit provider who provided the credit bureau with incorrect data. “

“If the information is correct and your bad credit is the result of a bad credit history due to bad debts or no credit history, other action will need to be taken”, a- he declared.

Ways to improve your credit score

If your bad credit rating is due to a lack of credit history, which means you have no record of your ability to take out and repay a loan, you should start by opening small retail accounts or a bank account. mobile phone contract. These debts must be repaid on time and in full (if not a little more) each month.

If your credit rating is low due to a bad credit history, you should try to pay off your debt as quickly as possible. Dyer recommends the following tips to help you strengthen your credit score:

  • Pay your bills on time.
  • Settle and close accounts.
  • Pay more than the minimum installments on existing debt.
  • Avoid asking for additional credit during this time.

“If you are applying for a home loan alongside a partner or if you are married in community of property, your partner will have to go through the same steps,” Dyer said. “Once you have started the credit rehabilitation process, you should continue to check your credit score every three to six months and make any necessary adjustments,” he said.

Dyer’s final tip is to work with a trusted home loan comparison service. “Before you start the home loan journey, find a trustworthy service provider, know your credit score, and get a prequalification certificate. This will give you a good indication of what you can afford and if you are potentially eligible for a loan.

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