Eish, Bank Said No? 5 Reasons Your Home Loan Was Declined
TL;DR: Banks decline home loans for five main reasons: your credit record, what you already owe, a valuation lower than the price, the property itself, and a messy or incomplete application. Four of the five can be fixed before you apply. For investors, existing debt in one name is the reason that keeps coming back.
Okay, so the bank said no. Here are the five reasons banks decline home loans, and your salary is only one of them.
A decline feels personal. It isn't. It's a checklist. Once you know what's on the list, you can fix most of it before you ever apply again.
Reason 1: Your credit record
The bank pulls your credit report before it looks at anything else. Late payments, defaults, judgments and accounts in arrears all show up, and they stay there for a while.
Ja, that missed cell phone payment from last year still counts.
Fix it: get your credit report and read it. Dispute anything that's wrong. Then pay everything on time, every time, for the months leading up to an application.
Reason 2: What you already owe
This is the big one for investors.
Under the National Credit Act, a lender has to check that you can afford the loan. So it adds up what you already pay every month. Car finance. Credit cards. Store accounts. Personal loans. Any bond you already have.
Banks generally won't let your total bond repayments go much past about a third of your gross income. Every repayment in your name comes out of the same slice. When the slice is full, the answer is no.
I know this one from the inside. Around 2015, 2016, I went back for another bond in my own name and got the soft no. The slice was full.
Fix it: pay down or close what you can before you apply. And think hard about where your next property's debt is going to sit.
Decide the container before the deal. The Directors Fortress shows you how to set up the company and buy in it. R99 once off. Start here
Reason 3: The valuation came in low
The bank sends a valuer. If the valuer says the property is worth less than you've agreed to pay, the bank lends against its number, not yours.
The gap is yours to fund in cash. If you can't, the application effectively fails.
Fix it: check recent sales of similar properties before you offer. If the valuation still comes in low, treat it as free information that you may be overpaying. That's a lekker thing to find out before transfer, not after.
Reason 4: The property itself
Some properties are hard to finance however good you look on paper. Buildings in poor condition. Unapproved alterations. Some property types and some locations. Each bank has its own list.
Fix it: move on quickly. Ask a bond originator early whether a property type is likely to be a problem, before you spend time and money on it.
Reason 5: How the application arrives
Missing payslips. Bank statements that don't match the income you've declared. A company with its paperwork out of order. Any of these can sink an application that would otherwise pass.
A banker has to justify you to a credit committee. An incomplete file makes that impossible.
When I bought my first property in a company, it went through on a 100% bond, and a big part of that was the document pack. Everything in order, down to an attorney-certified copy of my ID. Boring stuff. It works.
Fix it: hand over a complete, tidy pack. A good originator knows what each bank wants and presents it properly.
So why can't I get that third bond? Why reason 2 keeps coming back
Because of how most people buy.
Property one goes in your name. Property two goes in your name. Now two bonds are stacked on one payslip, next to the car and the cards. You go back for number three and the slice is full.
You didn't become a worse investor. You ran out of room in the container you were using.
When a property is bought inside a company, the bank also weighs what that property earns. You still sign surety and the bank still assesses you. But the deal isn't only another line on your payslip.
The catches
Every bank has its own criteria. What one declines, another may approve.
A company doesn't hide your credit record. With a new company the bank looks straight through to you.
Fixing a credit record takes months, not days.
More applications don't help. Several enquiries in a short time can count against you. Use an originator to submit properly.
Nothing here means a bank will approve you. These are the common reasons, not a promise.
Where the company fits
Four of the five reasons are things you fix. Reason two is a thing you design around.
Decide the container before the deal, and existing debt stops being the wall you hit at property two. The Directors Fortress shows you how to set up the company and introduces you to an investor-friendly originator. How bank financing works in detail is a module in The Vault. Container first.
FAQ
Why would a home loan be declined in South Africa?
The common reasons are a poor credit record, too much existing debt, a low valuation, a property the bank won't finance, or an incomplete application.
Can I apply again after my home loan is declined?
Yes. Find out the reason first and fix it. Applying again unchanged usually gets the same answer.
Does a declined home loan affect my credit score?
The enquiry is recorded. Many enquiries in a short period can count against you.
How much of my salary can go to a bond?
Many banks use about 30% of gross monthly income as a guideline, after a full affordability assessment. It varies by bank and applicant.
Can a company get a home loan if I was declined personally?
Not as a way round the problem. For a new company the bank assesses you as surety, so your record and debts still count.
Related reading
Start with the container
The Directors Fortress gives you the investor-friendly offer to purchase, the blueprint for registering the entity, and a walkthrough of the structure I use. R99 once off, yours to keep.
Education only. This article is general information, not tax, legal or financial advice. Speak to a registered tax practitioner, attorney or financial adviser about your own situation.
Sources
National Credit Regulator, affordability assessment: ncr.org.za
National Credit Act 34 of 2005
About the author
Michael Bowen co-founded ZAHomes. He bought his first property in 2003 on the outskirts of Amsterdam, with a 100% mortgage, at the wrong point in the cycle, and lost over €14,000 on it while sanding the floors himself in a heatwave. Twenty-odd years, 40-odd countries and a lot of property school fees later, he lives in Cape Town and teaches South Africans to buy and hold property inside a company. His view hasn't changed: an investor's greatest assets are the lessons from their failed deals.
