Housing financing: Why was my housing loan refused?

Housing financing: Why was my housing loan refused?

If you want to take out a home loan, you sometimes get a nasty surprise: Despite a supposedly good credit rating, the bank leads to a loan refusal. At first the dream of a condominium seems to have burst. But applicants don’t have to give up that quickly. It is now necessary to determine the reasons for the negative attitude of the bank and to obtain a new loan offer from another bank .

Reasons for a loan rejection.

The reasons sometimes lie with the applicant, but in many cases with the bank directly. The latter is derived from the fact that one and the same person receives a home loan from one bank, but not from the other. Banks have internal guidelines for home finance. For example, some financial institutions give a self-employed person a home loan, while others generally do not.

 A credit agency has a large number of partner banks. She also knows the intricacies of the procurement guidelines better. This means she can negotiate much better for you.

Pro Tip

The following reasons for a loan rejection are possible:

  • Bank business policy
  • fluctuating and / or low income of the applicant
  • Income from social benefits only
  • Trial period or fixed-term employment
  • general self-employment (contradicts the bank’s business policy) or too short self-employment (less than three years)
  • Low creditworthiness
  • Incorrect budget calculation (income-expenditure calculation does not withstand the bank check)
  • too old age
  • no adequate collateral
  • too little equity
  • Property mortgage lending value too low

What to do in the event of a rejection?

We work with a large number of partner banks and are therefore often able to finance the apartment under sub-optimal conditions . Note, however, that there are scenarios in which virtually no bank will give you a home loan.

When do you have a real chance of receiving another loan offer?

We rarely experience the case just described. The people concerned know themselves that they cannot and should not take out a home loan in their situation. Much more common are the borderline cases in which one bank is satisfied with the applicant’s income and the other is not. The group of self-employed people in particular often makes countless inquiries from various financial institutions before the financing can be realized.

Despite many years of self-employment with excellent balance sheets, they sometimes experience that their house bank, which knows best about their good business development, rejects the request for a home loan. Another bank then approves the loan. This is the classic case in which the first attempt at borrowing fails due to the bank’s business policy.

The bank could have decided not to give self-employed loans any more, but it could also make special demands on the mortgage lending value of real estate or on the income of the applicant, sometimes even on the industry in which he is active.

There are some situations in which doctors in private practice and independent lawyers have a good chance of getting a loan, but taxi operators, restaurateurs and fitness studio operators do not. In practice, however, it is by no means a matter of course that a lawyer earns significantly better than a restaurateur – on the contrary. But the business policy of your bank cannot be shaken, do not even try. Get a new loan offer from another bank.

How does a loan brokerage increase the chances of getting a home loan?

A credit agency has a large number of partner banks. She also knows the intricacies of the procurement guidelines better. This means she can negotiate much better for you. 

The following options are available, among others:

  • You could accept slightly higher interest rates. Then you will often get the loan even under less than ideal conditions.
  • Perhaps it helps to present your business development differently than before. If, as a self-employed person, you should submit the tax returns for the last three years, as requested, and these three years have turned out to be rather unfavorable, it might be worth the effort to submit the statements for the last five or seven years. A credit intermediary can also point out specifics of your business. In the first half of 2020, many restaurateurs have to report zero sales for several months due to the corona pandemic. But this is a special case that deserves special recognition. Otherwise the restaurant can run very well.
  • Perhaps you can borrow some money privately to show a higher equity ratio.
  • You could also take out residual debt insurance. It’s expensive, but mortgage rates are now very low. This will certainly increase your chances of getting a home loan.
  • If you have currently taken out several loans that significantly reduce your line of credit, one option may be to replace these loans with a new loan from a single bank.
  • You should make sure that your current account statement does not show any chargebacks or a completely exhausted overdraft facility. These are signs that you are not doing very well financially. Align such things before applying for a loan.

Assessment of creditworthiness from the perspective of home financing

Although there are generally valid criteria for creditworthiness, it makes a big difference whether you want to finance a car, a holiday trip, home furnishings or real estate. The latter is secured by land registry. If the mortgage lending value is possibly even above your loan requirements because you have enough equity, your chances of getting a loan are not bad at all, even with a slightly weaker credit rating. The banks usually use around 80% of the actual value of the apartment as the mortgage lending value.

You must therefore also ensure that the purchase price claim does not significantly exceed this actual value. Of course, this happens more and more often in booming regions, but the bank is not impressed by it. However, if you apply for a loan that may only reach 60% of the realistic mortgage lending value, an average and even slightly weaker credit rating is sufficient for many banks for the approval.

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