In this booming property market where properties are now more popular than ever as an investment option, you might also be considering to buy a property of your own. When buying a property, most of us would require a bank loan, which needs to be approved before we can secure a unit. However, even with good credit and seemingly good track record, your bank loan is not approved or only a lower amount is awarded. This affects your housing plan significantly, and you either place your strategy to buy a property on hold or to scale down and buy one that is much smaller than expected.
Here you will find the explanation to why your bank loan was disapproved, and how you can get back up on your feet to your premium lifestyle.
Reasons for bank disapproval may be minute, but not unforeseeable
You may think that you have the same level of credit worthiness to warrant the same bank loan approval as your peers, and lament that the difference in approval is due to arbitrary reasons. However, that is not the case – small differences can be interpreted as a fault against your bank approval.
That being said, we have sieved the three most important reasons that could impede the possibility of your bank loan being approved.
Reason #1: Sufficient income isn’t everything
By common sense, the amount of money you have should assure the bank that you are a viable candidate for bank loan right? Not necessarily. Another key for bank loan approval, that could be arguably more important, is your character. If you have a record of large financial transactions or unpaid loans and poor management of funds, this could indicate the unwillingness of the bank to approve your request for loan.
Its simple: would you lend money to a rich relative that is known for not keeping up to his promises? Most probably not. That is exactly what the bank thought as well.
To know what is your credit worthiness, look up your own credit report for a small fee per copy. Keep note of the number of defaults you have committed, especially the ones with significant amounts, as they could indicate to the bank that you do not have a good record for them to trust the loans to you. Furthermore, a poor grade could very well be the reason why the loan given to you is of much lower amount, affecting the size of the property you are entitled to purchase.
Reason #2: Could you be “credit hungry”?
In simple terms: desperate for extra funds. If you have been going up to every bank or financial institution to ask for extra funds, you will be placed on alert and thus, the bank will be much less willing to lend you the funds. After all, it raises suspicion that you in a rush to receive large of significant funds – signaling volatility and uncertainty. It could mean that you rushing to use this funds to support your flailing business before you run out of money completely. It could also be someone that does not have any funds after being sacked from a job, and is desperately trying a secure a loan before his lack of subsequent income is exposed.
So if you have been doing so, this could also be a possible reason as to why your bank approval is denied.
Reason #3: Self-employment and its accompanied uncertainty
Being self-employed means that you are possibly an ambitious entrepreneur, but as with all innovation comes with risks that the bank may be unwilling to shoulder. Furthermore, if you are self-employed, your salary is reduced up to 30% in the eyes of the bank (under the debt servicing ratio) because it is considered variable income.
That means that you are less likely to be a potential candidate for bank loan with your income greatly reduced – unless you can avoid being seen as a self-employer by pretending to be an employee under a client by requesting to be placed on a payroll. However, you better bet that your client is sufficiently willing to do this, since it means they are effectively your employer and have to pay you employment benefits.
To sum it up
Basically, certain information can dispel the willingness for the banks to approve your bank loan, though not limited to the ones below. That being said, while avoiding them completely may be impossible for some, it may be possible to mitigate some and limit the rest. If you are unsure on how to mitigate these reasons, do not hesitate to reach out us to know how to effectively do so.