After going through all the trouble to gather the necessary documents, you finally manage to fill up all the required fields on the mortgage loan application form, only to receive the unexpected news that your home loan has been rejected. However, this should not stop you from getting your dream house.
First and foremost, find out why is your home loan rejected. The news will usually come in the form of a letter, stating the reason(s) for the rejection. If no explicit reason is provided, it is important that you call up the bank to find out the exact reason so that your mortgage loan application will not be rejected again.
Here are some of the possible reasons why the bank may reject your application.
Loan Amount – Are you being too greedy?
The amount that you can borrow is determined by the Total Debt Servicing Ratio (TDSR). Under the TDSR, a framework established by the Monetary Authority of Singapore (MAS), your monthly loan repayment is capped at 60% of your monthly income so as to encourage financial prudence.
Another ratio to consider is the Mortgage Servicing Ratio (MSR), a component of the TDSR. The MSR dictates that your total monthly mortgage repayments must not exceed 30% of your gross household monthly income.
If you do not borrow within your limits, then the bank is bound to reject your application. As such, it is important to do the Mathematics first to determine how much you are entitled to borrow.
Haircut on Variable Income
If you are self-employed, or your salary is commission-based, or you receive annual year-end bonuses, then your income is not taken at its face value. Instead, the TDSR will require that you take a 30% haircut. For example, if you have a variable income of $10,000, only $7,000 will be taken into the TDSR. However, calculating the TDSR on your own may pose some challenges to you. While there are free TDSR calculators online, you will still need assistance in finding the best mortgage loan rates in Singapore. Consider coming to us for a free no-obligation consultation to see how we can help you.
A credit score is simply a value that banks will look at to have an idea of how likely you are to repay your debts, as well as your timeliness in doing so. The value is obtained based on your past payment history from the various loans that you have had. A poor score may cause some banks to reject your loan application. As it takes time to improve your credit score, it is advisable that you reduce the loan amount. Meanwhile, you can start improving your credit score by repaying your loans on time and not take on too many loans within a short period of time.
According to the Ministry of Law, bankruptcy is a legal status of an individual who cannot repay debts of greater than $15,000. Once you have been declared bankrupt, it is no wonder that it takes time before banks are willing to loan you such a huge sum of money. Even a letter of discharge is insufficient. Instead, you will have to wait for years before you can get credit again.