And what you can do as a prospective homeowner to avoid this.
JOHANNESBURG – While the rate at which banks reject bond applications remains relatively high, there are ways that you as a prospective homeowner can ensure you don’t become just another statistic.
According to a study by the Rawson Property Group’s Mike van Alphen, the main reason for banks turning down applications is a bad credit record. On the face of it, this seems self-explanatory in terms of checks with credit bureaux indicating judgements against prospective clients or bad debt written off by financial institutions.
However, Van Alphen says there could be other reasons which the banks are not at liberty to disclose due to client confidentiality. In some instances like judgements involving small amounts, banks might choose to ignore it. However, this in conjunction with arrears could lead to a rejection.
The study indicates that “poor financials” where the applicant’s business or corporate accounts were either unavailable or not in order, led to the rejection of 3% of applications.
Rawson says individuals planning to apply for a bond should therefore ensure they have clean records before they apply for finance, or even start looking around for a house.
Asked to elaborate on this, Van Alphen explained clients could apply for a credit report once a year. If they find they are in arrears or have judgements against them, they have an opportunity to settle these. Asked for how long this record needed to be clear to qualify, Van Alphen replied it varied from bank.
If you are self-employed you need to ensure that you are able to provide financials for up to three years.
The study says around 18% of rejected applications are due to clients not reaching the minimum credit score set by the various financial institutions.
Van Alphen says each bank, for instance, has its own confidential credit score card system, but they all loosely probe similar criteria. For instance, how long you have held down a job; the area you are looking at buying in and if you have not been entirely truthful regarding your credit status.
The fact that banks’ criteria do differ means if you are rejected by one financial institution, you can approach others and your application may just succeed.
Among other reasons why applications fail are:
Affordability: applicants simply don’t earn enough or more commonly did not disclose all their expenses to the consultant;
Insufficient cash flow. Self-employed people are particularly vulnerable in this regard;
Poor account conduct: the applicant already has a tarnished record with the bank.
Van Alphen says financial institutions are often open to negotiations and in many instances are not unreasonable when it comes to discussions about applications for bonds and dealing with hitches in the payment thereof if and when they occur.
Image source: "Mortgage Application Denied Stamp Shows Home Finance Refused" from Bigstock Source: Moneyweb
