Having a home loan application rejected can be a disappointing setback on your journey towards home ownership. However, a rejection is not the end of the road.
Understanding why your application was denied, and taking proactive steps to improve your position, can increase your chances of approval in the future.
In this article, we guide you through the next steps you can take after a home loan rejection, including analysing the reasons for rejection, improving your financial profile, and more.
3 Common Reasons Your Loan Application Was Rejected
When your home loan application gets rejected, it’s essential to take the necessary steps to understand the reasons behind the rejection.
Lenders typically evaluate several factors to assess the risk associated with granting a loan, such as:
- Credit Score
A credit score is a numerical representation of your borrowing history. When your credit score is low, it indicates to lenders that you’re a high-risk borrower, resulting in rejection.
- Debt-to-Income Ratio
Your debt-to-income ratio calculates the proportion of your monthly debts in relation to your monthly income.
If your ratio is too high, it might imply that you won’t be able to repay your loan on top of your existing financial obligations.
- Employment History
Lenders prefer applicants with a steady employment history. Frequent job changes or periods of unemployment can create concerns about your ability to repay the loan.
Read More: Different Types of Housing Loans Offered in Malaysia
Your Next Steps for Financial Success
With determination and the right approach, achieving your dream of owning a home is still possible. Here’s how you can increase your chances of getting your loan application approved:
1. Review Your Credit Score
Reviewing your credit report is crucial for maintaining a healthy financial profile. Take the time to carefully analyse your report, checking for any mistakes like:
- Incorrect personal details
- Unfamiliar accounts
- Incorrect payment records
These errors can harm your creditworthiness, potentially leading to a lower credit score or signalling possible fraudulent activity.
Moreover, it’s advisable to monitor your credit regularly. This practice lets you promptly identify any unusual transactions or signs of identity theft that could negatively impact your finances.
2. Reduce Your Current Debts
Reducing debt is crucial to improving your financial situation and enhancing your appeal to lenders. To effectively reduce your debt and improve your financial standing, consider implementing the following strategies:
- Create A Budget
Assessing your income and expenses is the first crucial step in reducing debt and achieving financial stability.
By thoroughly examining your financial situation, you can develop a realistic budget that aligns with your income and financial goals.
Furthermore, allocating a specific portion of your income towards debt repayment can help. This means setting aside a fixed amount each month that is dedicated solely to paying down your debts.
- Prioritise Debt Payments
List all your outstanding debts, including credit card balances, loans, and any other financial obligations.
Once you have compiled the list, it’s essential to prioritise your debts based on certain criteria.
One common approach is to prioritise debts either by interest rates or by the debt with the highest balance.
Both methods have their advantages, so choose the one that best meets your financial goals and circumstances.
- Limit New Financial Commitments
While working on reducing your debt, it’s essential to avoid accumulating new credit card balances or acquiring unnecessary loans during this period.
This is because taking on new credit card balances or loans adds to your overall debt, prolonging your debt repayment journey and increasing the total interest you’ll pay over time.
- Increase Your Income
Finally, to expedite your journey towards becoming debt-free, explore avenues for increasing your income.
This can be achieved by considering options such as taking on a part-time job, engaging in freelancing work, or even starting a side business.
3. Maintain Steady Employment
A steady job plays a crucial role in demonstrating financial stability, particularly in a loan application.
It indicates to lenders that you have a reliable source of income, making you a more trustworthy borrower.
Moreover, a stable employment history minimises concerns about potential gaps in employment or frequent job changes, which might raise doubts about your ability to repay the loan.
4. Seek Professional Advice
If you need help navigating the loan application process or improving your financial profile, consider seeking professional advice.
Mortgage brokers and financial advisors are professionals who specialise in providing guidance and assistance in these areas, and their expertise can be instrumental in achieving your financial goals.
For instance, they can:
- Assess your financial situation, such as your income, credit history, and debt obligations, to determine your eligibility for mortgage loans.
- Engage with multiple lenders to find suitable loan options for you.
- Gather the necessary documents and ensure all required information is provided for the loan application.
- Submit loan applications and negotiate terms on behalf of their clients.
5. Consider Other Lenders
Lastly, it’s essential to understand that different banks have varying criteria for approving loan applications.
This means that if your loan application gets rejected by one lender, there is still a possibility that another bank may approve it.
In addition to traditional banks, there are other avenues you can explore when seeking a loan, such as private lenders and credit unions.
These financial institutions often have more flexible lending criteria compared to traditional banks.
Additionally, they may take into account factors beyond just your credit score and offer loans to individuals with less-than-perfect credit histories or unique financial situations.
However, it’s essential to approach alternative lenders with caution.
While they may be more lenient in their lending requirements, they could also charge higher interest rates or ask for additional collateral to compensate for the perceived increased risk.
Therefore, it’s crucial to carefully assess the terms and conditions these lenders offer to ensure the loan is still manageable and affordable for you in the long run.
Read More: Rent to Own (RTO) Malaysia: Everything You Need to Know
Simplify Your Rental Search with Rumah-i
Facing a home loan rejection can be disheartening, but it doesn’t signify the end of your journey.
By comprehending the reasons behind having your loan application rejected and taking proactive measures to improve, you can bolster your application for the future.
Rumah-i is a leading rental services company in Malaysia that offers property owners and investors simple and hassle-free solutions.
If you’re planning on moving out and need help finding a home, our Home Renting App is your ultimate solution.
A user-friendly platform designed to help you easily find your perfect home, download our app from Google Play or the App Store!
Likewise, if you’re a property owner looking for tenants, you can also list your property on our app for free.
