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:
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 Total 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.
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 MoneySmart. 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 TDSR – Tweak the Loan Quantum
Your TDSR (Total Debt Servicing Ratio) measures your income to your overheads. Regulations introduced in the middle of last year sought to curb overall spending and this in turn affects your ability to apply for a loan. Want a more comprehensive breakdown? We explain TDSR fully here.
For the self-employed, TDSR 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 TDSR 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 TDSR 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.
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 in 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.
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.
Has your home loan been rejected? Comment and we’ll see if we can help you!
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Tags: Home Loans