Five tips to prevent loan rejection when buying property
Would you like to realize your dream of your own four walls and take out a loan to purchase real estate? Despite low interest rates, a bank or savings bank may refuse your loan request. Five tips show how you can prevent this.
In order to prevent your loan from being rejected, we need to take a look at the reasons for it. ImmobilienScout24 has analyzed the five most important of them.
1. You have the wrong job
The bank or savings bank values your job as being “unsafe”. This includes, among other things, temporary employment contracts or if you are still in the trial period. The bank wants to ensure that you can repay your loan in the long term. However, a very short notice period applies during the trial period.
Our advice: wait until after the trial period with your loan application or that you have a permanent position. Alternatively, a solvent guarantor (spouse, relatives) can convince the bank to reassess your situation – depending on the loan amount.
2. You are self-employed
Independence alone is not an obstacle to building finance. However, if you are a business founder, this is the worst time for a larger loan from a banking perspective. Statistically speaking, a self-employed person will only achieve a reliable income after around three years.
But the bank will also make inquiries about long-term self-employed workers.
Our advice: have all the necessary documents (tax assessments, proof of solvency, business plan or business evaluation (BWA) of at least the past three years) ready to be able to react quickly to questions from the bank.
3. The bank’s lending limit is too low
Thanks to the low interest rates, it is becoming increasingly attractive, but not every bank will offer you full financing of the property. Firstly, this means that a security discount is usually deducted from the actual value of the property, and secondly only a certain part (usually between 40 and 80 percent) of which is financed by the bank. If this loan limit is lower than you can imagine or with your own equity, this can lead to the loan being rejected.
Our advice: check several banks and inquire about their lending limits. If you are aiming for 100 percent financing, you do not need to go to banks that only want to finance 65 percent.
4. Your credit rating is not sufficient
A bank not only checks your income, but also your credit rating. Do you have negative credit record entries, perhaps because you did not repay previous loans regularly or incompletely? Or does your account have other irregularities, such as overdraft facilities and return debits? All of this diminishes your credit rating.
Our advice: Try to pay all your debts on time in the months before the loan application. Check your credit record score regularly (it’s free once a year), but be sure to do so before you make your first loan application. If there are unauthorized entries, you can notify credit record and have them deleted.
By the way, other loans (eg leasing, car loan) or collection transfers can also be harmful if the impression is confirmed that you do not have enough free income to pay the new loan.
5. Your age is too old
In 2016, the lending guidelines were tightened to such an extent that it was very difficult for older borrowers to get a cheap loan. Even though the property was of high value, the bank was guided by the ability of buyers to actually repay their loan.
However, since 2018 it has become easier again: If the creditworthiness is good and the value of the property exceeds the loan amount, older builders will also get a loan.
Our advice: With a lot of equity, a long-term secured income, assets as collateral, a high initial repayment with redemption option at the beginning of retirement age, a fixed interest rate without risk of an interest rate increase and possibly a residual debt insurance, you are on the safe side when applying for a loan.