With lower 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 mortgage financing in the first quarter of 2021, 15% of applicants are rejected due to lack of affordability and poor credit rating. Of those rejected homeowners, 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.
Breaking the myth of personal banking
This is not the case, explains Rhys Dyer, CEO of ooba Home Loans: “When you apply for a home loan, you would assume that your first stop would be to apply directly to your own bank. After all, you probably have a great relationship with them and they are normally your first point of contact â€,
“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 in 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, â€Dyer adds.
Reasons for rejection and next steps
“First and foremost, it is crucial that a rejected candidate take steps to improve their financial health.”
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 â€,
If your credit rating is bad (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 debt or no credit history, other action will need to be taken.”
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. cell 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 payments on existing debt.
- Avoid asking for additional credit during this time.
“If you are applying for a mortgage alongside a partner or if you are married in community of property, your partner will have to follow the same steps,†he adds.
“Once you’ve started the credit rehabilitation process, you should continue to check your credit score every three to six months and make any necessary adjustments,†says Dyer.
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.
PERSONAL FINANCES
