Before even finalizing your home, it is obvious that you need to do some thorough research on the different types of lenders, interest rates, etc. Since mortgage loan is a crucial credit that can last for more than two decades, you must also take every precaution so that your mortgage is not rejected.
From a lender’s perspective, the mortgage is a big investment and the lender wants to be sure their money is going to someone they can trust to pay it back. When it comes to the reasons for rejected mortgage applications, some specific issues arise on a regular basis. Many of them can be avoided if they are thought out in advance and dealt with.
Here are nine of the most common home loan rejection reasons that you should know about, if you’re planning on taking out a home loan, based on research from UAE’s top mortgage consultant, Mortgage Finder, who does part of the Property Finder group, and other mortgage advisors and financiers:
Reason # 1 – If the borrower does not prove the prerequisite affordability
The debt-to-burden ratio, or DBR, is a measure the bank can see that you can meet your monthly mortgage payments. You must inform your lender of other loans taken out, including your car loan, a two-wheel loan, a personal loan, etc. This helps the lender to assess your loan-to-income ratio. The total loans taken out by you, including the home loan, if approved, must not exceed 50 percent of your monthly income.
Lenders often reject home loans if the loan-to-income ratio exceeds half of your monthly income. However, you can apply for a home loan as a solidarity loan, including your family income (spouse’s and children’s income) for it to be approved. So, before you apply for your mortgage, it’s worth examining your debts to make sure the approval process goes smoothly. Once half of your salary easily covers your regular obligations, you know you’ve come to the right place to review the claim.
Reason # 2 – Age of borrower, nationality at time of application
There are two basic scenarios for which a home loan application is rejected; if the borrower is a young employee or if his age is close to retirement, when he applies for the mortgage. Lenders are often reluctant to approve loans for these people because they cannot accurately assess the borrower’s repayment capacity. While a fresher student generally has a lower income, someone nearing retirement may not have the capacity to repay the loan when their sources of income decline.
Your age and where you are from are two factors you can’t change, but it’s important to realize that both can affect your application. In terms of age, you must be at least 21 years old to apply for a UAE mortgage. There is also an upper age limit set by most banks, in most cases your final payment will be due before age 65 if you are an expatriate employee, and by the time you are 70 if you are a UAE national or self-employed. individual.
Where you come from is also a factor. Some countries are sanctioned and UAE banks are unlikely to lend to nationals of these countries except in exceptional circumstances. The list of sanctioned countries is subject to change and is not the same for all banks.
Reason # 3 – Lender Stress Test Failed
Interest rates fluctuate over the life of your mortgage, and your fixed rate won’t last forever. Mortgage lenders want to know that you can manage mortgage payments even if the interest rate goes up. To verify this, they’ll perform a stress test on your mortgage payments, which takes into account what the repayments might be if interest is higher than it is today.
As the primary test of affordability, the stress test is measured against your current finances. It is set at different levels for different banks, but can be considerably higher than your actual rate. Stress testing is a normal part of the mortgage process in most countries, including the United Arab Emirates. Banks want to make sure that even under the worst possible circumstances, you can still make the monthly mortgage payment, which means affordability is a major concern for them.
Most UAE banks rate their accessibility calculations on the basis of only 50% of your income to account for a drop in income, rough months, or sudden and unexpected large expenses. While this conservative approach to lending criteria may make it harder to apply initially, it gives you and the banks the security of knowing that the mortgage won’t put too much strain on your finances, even as times get tough. a little more difficult – as in the current pandemic.
Reason # 4 – If the borrower has a history where employment has been unstable
Since home loans usually last a very long time, comes with a long term liability. Frequent job changes, along with periods of unemployment, can affect your eligibility for a home loan. You must be employed for a minimum and continuous period of three years with the current employer for your mortgage to be approved. If you are employed for a longer period, the lender is guaranteed that you have the repayment capacity to repay the loan within the stipulated time frame.
Reason # 5 – Make the mistake of misrepresenting or incomplete documentation
Accuracy is a crucial factor in your mortgage application; if you are not clear about your situation, it can cause problems. Make sure you clearly disclose your situation. Mistakes like suggesting that you are an employee of the business when you are in fact a self-employed business owner, for example, can be costly. Banks will do their due diligence and research you, so disclose all key information correctly and clearly.
Reason # 6 – The borrower has a poor credit history compared to the loan amount sought
In many countries around the world, your credit score has a big impact on your mortgage application. In Dubai and the United Arab Emirates, your credit score is also an important part of your application and is a key factor taken into consideration. The credit report includes a complete record of your previous loan applications, including those that are rejected. It is therefore preferable to know your results with one bank before applying for another for a loan. This will help you correct your mistakes and make sure you don’t repeat the same thing when you apply for the loan a second time.
If you have a bad financial history and a significantly low credit rating, it may hurt your application. Time is the key factor in improving a credit score. Experts suggest putting as many months as possible between yourself and the last fault or mistake to show improvement. Keep in mind that credit history is not moved from country to country, so your score may not exactly match your home country. Additionally, an empty score that indicates there is no business in the country can often be as bad for a lender as a negative score – after all, that means they have no idea if you are. a responsible borrower or not.
Reason # 7 – If the borrower is guarantor of a defaulter
Another reason your home loan may be turned down is if you have been guarantor of a delinquent loan. You need to be extremely careful before deciding to vouch for anyone as it can sometimes be risky for you, especially when you need a loan yourself. It is necessary to be perfectly sure of the borrower’s repayment capacity before becoming his guarantor. Don’t sign up to be a guarantor for a borrower you don’t know. If the borrower does not repay their loan, you are not only held responsible and obligated to pay the remaining loan amount on their behalf, but it also affects your own credit behavior.
Reason # 8 – Lenders value your property less than you
If the bank values the property you want to buy for less than what you offered to pay, there could be a gap in the available mortgage that can make the final transaction difficult. This can lead to your down payment being increased or the sudden need to renegotiate the price with the seller.
Lenders often check whether the borrowed property is approved by local agencies. If the property is not approved or if it does not meet certain guidelines prescribed by local authorities, the loan may be rejected. Additionally, lenders are often reluctant to provide loans for the purchase of older properties because they usually do not have a good resale value.
There may be times when you have a property approved but your lender does not approve the builder. Home loan rejections are common in such scenarios. Therefore, you should check with the lender for the list of builders approved by them before applying for the loan.
Reason # 9 – Borrower is unaware of business issues and company history
Your job is of utmost importance to lenders in the UAE and there are many things about your employer or business, if you are a business owner, that can affect your application. Some areas that the bank may consider when reviewing your employer or business include the reputation of the business, including any negative media or bad press, the established history of the business, the size of the business. business and the projected stability, financial condition or industry in which the business operates.
Banks are more comfortable lending when they know the business you’re affiliated with is stable and has a stable future. If you are able to affect your business (as an owner, for example), you might want to consider making improvements, such as having clear finances, before applying for a mortgage. If you are an employee and your business is in bad shape, you may want to consider other work options. Account.