Struggling to get a home loan?
With lowered interest rates and motivated sellers, home ownership has never been more attainable. However, few of us can finance the purchase without the help of a home loan.
It was recently reported that 80.7 per cent of ooba Home Loans applicants successfully obtained finance in the first quarter of 2021. Fifteen per cent of the applicants were rejected due to lack of affordability and poor credit score. Of these rejected homeowner hopefuls, a staggering 44 per cent were rejected by their own bank. So what do you do if you find yourself in this situation?
Spread your risk
“When applying for a home loan, you’d assume that your first stop would be your bank. However, a bank’s lending criteria are regulated by the National Credit Act and as a result, there’s no guarantee it will approve your home loan. “Based on this, we recommend spreading your risk by making use of a home loan comparison service to increase your chances of being approved at the best possible interest rate,” explains Rhys Dyer, CEO of ooba Home Loans.“We will apply to multiple banks on your behalf,” Dyer says. “We have successfully secured home loan financing for about two in every four applications that were initially turned down by their bank. This is because each bank makes use of different lending criteria when evaluating an application,” he continues.
Poor credit score
When banks assess home loans, their first step is to check your credit score. “A poor credit score is the most common reason for rejection. Luckily, there are ways to improve your standing before applying again,” explains Dyer. If your credit score is rated poor (below 600), it’s recommended that you obtain a copy of your credit report from the credit bureau.
“If you identify errors on your credit report, the credit bureau should be notified of these and you should then take the necessary action to rectify the information displayed on the report,” adds Dyer. “If the information is correct and your poor credit score is the result of bad debts or having no credit history, you need to take more action.”
So, how do you improve your credit score?
- If your poor credit score is due to a lack of credit history, meaning that you have no record of being able to take out and pay back a loan, begin by opening small retail accounts or a cell phone contract. These debts should be paid back on time and in full (if not a bit extra) each month.
- If you have a low credit score due to an impaired credit record, settle your debt as quickly as possible and do the following:
- Pay your bills on time.
- Settle and close accounts.
- Pay more than the minimum instalments on existing debts.
- Avoid applying for additional credit over this period.
- If you’re applying for a home loan alongside a partner or are married in community of property, then your partner will need to follow the same steps.
- Once you start your credit rehabilitation, you should continue to check your credit score every three to six months and make the necessary adjustments.
- Work with a reputable home loan comparison service. “Before starting your home loan journey, find a trustworthy service provider, know your credit score and obtain a pre-qualification certificate,” summarises Dyer. “This will give a good indication of what you can afford and if you’re potentially eligible for a loan.”
* Source: Supplied on behalf of ooba Home Loans, ooba.co.za
