What to Do When Your Home Loan is Rejected
For some reason, banks are all sensitive about this thing called “money”. You would think that, having so much of it, they wouldn’t be all possessive over it. “Uh, I think being possessive is the reason they have so much of it?” Shut up, don’t try to trick me with logic! The fact is, banks are pretty fussy about who they lend money to. So if your home loan’s been rejected, try these steps:
You’re rejecting my application? But my mistake was years ago, and this wasn’t even the bank I robbed!
Why Do Home Loans Get Rejected?
The three common reasons are bad credit, high DSR, or trying to buy property in Geylang. If the last one sounds like a weak attempt at humour, it isn’t. I’ll explain that in point 3.
Each of these problems can be addressed in a certain way. I can’t promise success, but these are worth a shot:
Bad Credit – Try Financial Institutions
High Debt Servicing Ratio – Tweak the Loan Quantum
Buying in Geylang – Find the Right Bank
1. Bad Credit – Try Financial Institutions
If you’ve declared bankruptcy before, you’re in a tough spot. Having a letter of discharge isn’t enough; you also need to wait a number of years before you can get credit again.
For foreign banks, you’ll wait up to seven years. Local banks are more forgiving, and extend credit after five years. This wait time is regardless of how fast you paid your debts. As far as the banks are concerned, you need to be quarantined until cured of poverty.
Remind our credit officers to wash their hands. We don’t want to catch any poverty.
Bad credit can also come from credit card debt. If you’re anything below a B, the bank hesitates. You can check your credit score with Credit Bureau Singapore, or just use this checklist:
A = You pay your credit card bills on time
B = You only make minimum payments
C = You’ve been late by at least two weeks. Bad credit starts around here.
D = You’ve received a warning letter.
F = You’re lucky the bank’s favourite hitman had that other job in Paris.
If credit repair would take too long, you need to look outside the banks. There are a number of (legal) financial organizations that also extend loans. To find them, check out various loan sites like Smartloans.sg. To find out more about maintaining good credit, follow us on Facebook.
While financial organizations will take a risk on you, be aware of two things: First, their interest rates may be higher. That’s the price for bad credit. Second, they’ll require that you at least clear any outstanding debt.
2. High DSR – Tweak the Loan Quantum
Look, I’m really trying to stretch your loan here. Now have you had any spare body organs valued?
Your DSR (Debt Servicing Ratio) measures your income to your overheads. Most banks tolerate a maximum DSR of 50%.
For the self-employed, DSR is about as practical as a three-legged horse. Businessmen and start-up owners, for example, may have complex income declarations. These people are advised to seek out banks with asset-based lending. As with point 1, try the loan comparison sites.
If your DSR is the reason for rejection, the first step is to change the loan quantum (the amount you are trying to borrow). The less you try to borrow, the lower your monthly payments become. Just keep lowering the amount until your DSR is within range.
If this gets to the point where you can’t afford the down payment, you only have two choices: Find a cheaper house, or lower the loan quantum but stretch out the loan tenure.
I strongly advise the cheaper house. I think your DSR should be 40% or below, but I want to present the other options.
3. Buying in Geylang – Find the Right Bank
Geylang is a hub of financial transactions, where rental rates are hotly debated every night. It’s a red light district, is what I’m trying to say.
This tends to play havoc with property valuation. Even if a property has good location (Geylang is a central region district), factors conspire to drive prices down. Factors like, for example, the desire to walk home without being solicited. This makes resale values potentially low, except to parties the bank would rather not have in their lobby.
How exactly are these “students” affording your rental rates?
Because of this, many banks refuse to finance property in the Geylang area. But this only affects properties within certain lorongs (various banks have their own opinions), and not the whole of Geylang.
For more open-minded buyers, Geylang properties can provide a fairly central location at a steal. The only issue is finding a bank to finance it. And while local banks shy away, some foreign banks may be open to the idea. You can either call all the banks and ask yourself, or contact a mortgage broker.
Image Credits:
hans.gerwitz, scragz, University of the Fraser Valley, cogdogblog, INABA Tomoaki
Has your home loan been rejected? Comment and we’ll see if we can help you!
Get more Personal Finance tips and tricks on www.MoneySmart.sg
Click to Compare Singapore Home Loans, Car Insurance and Credit Cards on our other sites.
More From MoneySmart
