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Why Was My Bond Application Declined?

Buying an immovable property is one of the most fulfilling experiences in life, and when one embarks on that endeavor, hurdles along the way are definitely not appreciated. Property purchase transactions that are concluded in cash usually come with lesser problems, more often it is the transactions in which the purchase is funded by a mortgage bond where hurdles may be encountered.

Bond originators can help you navigate home loan applications

This is why more and more home buyers are finding it much easier and convenient to use the services of bond originators in the application process of home loans. As Phoenix Bonds, we make it our business to ensure that the bond application process feels like a walk in the park on a Sunday morning.

As a point of departure, this article aims to shed a bit of light on the reasons why financial institutions may reject a home loan application whereas by some indications the home buyer stood a good chance on some factors e.g a good credit score, a good income. The reasons are various and they range from employment history, residence history, or some other factor on the criteria of the particular financial institution.

Credit Score and your Home Loan Application

In other instances the employment and residential history are in order and yet it is the credit score that frustrates the prospects of an application.  There are a number of factors that affect the credit score of a credit consumer such as:

  • High balances on open accounts;
  • Accounts handed over for collection;
  • Judgments;
  • Several credit inquiries;
  • Incomprehensive credit history

While the above are self-explanatory, we will briefly explain what credit inquiries are. Whenever a credit consumer applies for credit, the credit provider is required by the National Credit Act 34 of 2005 to conduct an assessment into the creditworthiness of the consumer. As part of that assessment the credit provider checks the credit profile of the consumer at the Credit Bureaus, and these are what reflect on the credit report as inquiries.

It is not in the favour of the credit consumer to have several inquiries on their credit report especially over a short period of time, because this may come across as an indication that the consumer is a serial borrower, or that he/she is being declined by other credit providers. It has a negative impact on the credit score of the consumer.

Debt-to-Income Ratio and your Home Loan Application

With regard to income, the credit provider may turn down the application because the income is lower than the minimum standard for that credit facility, thereby affecting affordability. Alternatively, it might be because the Debt-to-Income Ratio is high.

Debt-to-Income Ratio is the result of dividing the total monthly debt repayment/instalments by the gross monthly income. Some credit providers for mortgage bonds prefer that it be 35 percent or lower, meaning that the one that is above this figure may face negative prospects.

Having high unsecured debt plays a significant role also. Unsecured debt are credit facilities such as personal loans and credit cards. Secured debt is where a guarantee is furnished to serve as security against the loan, and therefore less risky. Unsecured debt however, does not enjoy the same protection in favour of the credit provider and therefore having high unsecured debt contributes negatively towards the prospects of the home loan application.

Mortgage lenders also hold much interest in the total debt service ratio (TDSR) of the mortgage bond applicant, to determine their risk level. This is a percentage of the gross annual/monthly income that is required to pay all their loans and obligations. Mortgage lenders prefer that the ratio be 55 percent or less.

Home Loan Application Rejected - What Now?

With the above being said, in the event that a credit consumer has a good credit score and adequate income, the other factors mentioned above may still affect the home loan application to the extent of being rejected. The question that becomes important is, how can one fix this and stand a better chance?

  • Pay off accounts that you can as soon as possible;
  • Pay accounts on time;
  • Negotiate payment arrangements for accounts that have been handed over for collection to avoid judgments;
  • Study the credit report and lodge a complaint on any incorrect information that has a negative effect on the credit profile;
  • Avoid too many unnecessary inquiries;
  • Seek further financial guidance.

At Phoenix Bonds we assist with the application of mortgage bonds as well as bridging finance. We take pride in seeing our clients smile throughout the process of bond application as our involvement as bond originators makes it easier and convenient.

The information contained in this site is provided for informational purposes only, and should not be construed as professional advice on any subject matter. One should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this site contain general information and may not reflect current legal developments or address one’s peculiar situation. We disclaim all liability for actions one may take or fail to take based on any content on this site.

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