What to do if your home loan was declined due to affordability

Article summary

• Home loans are usually declined due to low credit records, so we explain how to improve your credit record.
• You can apply for the First Home Finance subsidy, which is specifically aimed at low earners.
• You can apply to multiple banks; some may be willing to approve an application that others rejected.

It’s heartbreaking to have your home loan application declined. All that excitement about buying a new home only for it to end in anti-climax.

But what many South Africans don’t realise is that this is not the end. You have options available to you even after a home loan is declined.

Your home loan was declined due to affordability: Here are your options:

1. Improve your credit record.
2. Apply for a First Home Finance subsidy.
3. Apply to other banks through a home loan comparison service.

1. Improve your credit record

Your credit record is the most important factor banks take into account when assessing your home loan application. It’s a three-digit number that tells them how sound your financial situation is.

You need a credit record of at least 610+ to get a home loan approved.

Credit records in more detail:

• 781 to 850. Excellent.
• 661 to 780. Good.
• 610 to 660. Fair.
• 500 to 610. Poor.
• 300 to 499. Very poor.

A low credit record usually leads to a home loan application being rejected.

But you can take steps to improve your credit record. For example:

• Check credit reports for errors. Credit bureaus calculate your credit record using your payment and account history, but the report could be subject to mistakes. Contest some of the black marks on your credit record, such as late payments that weren’t late, and you may be able to earn yourself a few extra points.
• Pay outstanding debts. Outstanding debts have a significant impact on your credit record, so pay off as much and as many as you can.
• Reduce credit ratio to below 30%. The gap between the amount you owe and the limit to your credit is known as your credit utilization ratio. A good rule of thumb is to keep your credit utilization ratio at 30% or lower.

How long before improvements to your credit record take effect?

It usually takes about three months for improvements to your credit record to register. So you can check your credit score again after three months and see if it’s increased to 610 or higher.

You can get prequalified with ooba Home Loans to find out your credit record and your chances of getting a home loan approved.

You can get prequalified by contacting an expert at ooba Home Loans or by using our free, online prequalification tool, the Bond Indicator.

2. Apply for the First Home Finance subsidy

• First Home Finance, formerly known as FLISP, is a government subsidy aimed at first-time homebuyers with low income.
• If your application was rejected because your income wasn’t high enough, this subsidy can rectify that.
• If you meet the qualification criteria for First Home Finance, the government provides a subsidy ranging from R30 001 to R130 000. The lower your income, the higher your subsidy.

How do I qualify for the First Home Finance subsidy?

• Your income must range from R3 501 to R22 000 per month.
• You must be a South African citizen with permanent residency in South Africa.
• You must not have received a government housing subsidy before.
• You must be married or cohabiting OR single with financial dependents.
• You must be over 18 years old.
• You must not have owned a fixed residential property before.

After qualifying for the subsidy, apply for a home loan again. The bank will be more likely to approve it, knowing you have funds available thanks to the subsidy.

Note You can apply online for First Home Finance with ooba Home Loans.

3. Apply through a home loan comparison service

• Banks have different lending criteria, and some may be willing to approve a home loan application that others rejected.
• So, if the bank rejected your home loan, simply apply to another bank.

You can do this by applying through ooba Home Loans. We will submit your application to multiple banks, giving you the best chance of home loan approval and also allowing you to compare the deals the banks offer.

We also offer a range of tools that can make the homebuying process easier.  Start with our Bond Calculator, then use our Bond Indicator to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.