Common Bond Rejections and How to Improve Your Chances
Bond rejection can hurt pretty badly especially if you had your heart set on a specific house.
The best thing to do is to get up, dust yourself off, and identify the reasons behind the bond rejection. It could be one problem or it could be several contributing factors.
The good news is that it is not the end of your home-buying journey.
Problems like these can easily be fixed and within no time you'll be back in action, looking for your dream home.
Here are a few reasons behind a bond rejection and what to do to fix it.
#1 - Common reasons
There are a few common reasons for bond rejection.
Firstly, banks might reject your application if they find that you have an unstable employment history.
If you have been jumping from one job to the next it shows that you do not have long-term financial stability.
Secondly, your residential history can also lead to bond rejection.
If you've moved from one place to another too often, it also shows that you are unreliable and you are not committed to the long-term responsibility of owning a home.
Another big reason is cash flow or liquidity problems. Make sure that you aren't blacklisted anywhere.
#2 - A bad credit score can lead to bond rejection
The biggest reason behind bond rejection is a bad credit score.
If there are too many red flags against your name or your credit score is unfavourable, you might not get approved.
You can fix a bad credit score by reducing the amount of debt on your name.
Make sure that you make payments on time and that you avoid incurring any more debt. Nonexistent credit scores are also reason enough for bond rejection.
You need to prove that you are reliable and that you can pay off debts in the long run.
#3 - Bond rejection often happens due to low income
Financial institutions can reject your bond if your income is too low.
Whilst this is something that you might not be able to change, you can work around it.
Save up as much as you can before applying for a home loan and put down a big enough deposit that will cover the shortfall.
Banks can also reject you if your income-to-debt ratio is too high.
Lenders prefer a ratio of 35% before approving your loan. You can calculate your ratio by dividing your monthly debt payments by your gross monthly income.
#4 - How to improve your chances
There are other ways that you can improve your chances of getting approved for a home loan.
You can get a copy of your credit score report from the credit bureau. Every South African is entitled to one free copy per year.
If you find any errors on this report, you need to notify the bureau so that it can be corrected.
Any errors that go unnoticed will negatively impact your chances of getting approved. It is better to check the report every year even if you are not applying for a loan.
#5 - Approach the bond originators
As soon as you are satisfied with your credit report, approach the bond originators before starting your house-hunting journey again.
It is always better to get pre-approved before diving onto property portals again.
This will give you a better idea of what you can afford and it will show the sellers that you are more serious than buyers who are not pre-qualified.
Bond originators will apply to banks on your behalf and make sure that you get the best deal on a home loan before you buy.
It is not the end of the world if your bond is rejected. There are ways to get back on the house-hunting track in no time.