Any homebuyer will tell you that a home loan isn’t just handed to you—you need to apply for it carefully and meet certain eligibility criteria. But what if your home loan application is rejected? Now, you might feel a bit stuck. We’ve compiled a list of potential reasons why your home loan might be rejected in Singapore, along with some steps you can take to try again.
Why Would Your Home Loan Application Be Rejected?
There are many reasons why your home loan could be rejected in Singapore. When faced with such bad news, you might wonder: what’s next? Financial institutions like banks usually don’t state the reason for rejection, but our mortgage advisors can advise you on your next steps and how to apply more strategically next time.
The first step to overcoming this hurdle is to understand why your home loan application was rejected.
Possible Reasons for Home Loan Rejection in Singapore
1. High Total Debt Servicing Ratio
You might have heard this term thrown around, but if owning a home is a new journey for you, don’t worry. Simply put, the Total Debt Servicing Ratio (TDSR) refers to how your income affects the amount you can repay in monthly debt. This debt includes existing bank loans, credit card repayments, car loans, and more. In Singapore, if your TDSR exceeds 55%, your home loan application will be rejected (or perhaps approved, but the loan amount will be capped at the TDSR limit). There are several ways to lower your TDSR to get your home loan approved.
Reduce Your Loan Amount
This is a common strategy. You can apply for a smaller loan amount initially to have a higher chance of approval. Once you’ve paid off all outstanding debts, you can reapply for a larger loan in the future.
Extend Your Loan Tenure
Extending the time needed to pay off your home loan can reduce your monthly repayments, giving you more leeway to adjust your TDSR accordingly. This approach can make the difference between a TDSR of 45% and one over 55%.
Pledge Your Liquid Assets
If your debt-to-income ratio is high, but you have investments in stocks or bank deposits, providing a statement of your financial position can help you out of a tight spot. You can also choose to show the funds you possess to prove your ability to repay the home loan.
Choose a More Affordable Home
If none of the above methods suit your situation, it might be time to start with a “starter home.” This refers to a house that might be outside your preferred choices but is within your budget. Take some time to pay off your debts, and you can sell this property later to upgrade to a better one in the future.
Please note that even if you complete all the above steps and meet the TDSR requirements, your mortgage advisor might still advise against applying for a home loan just yet. Ideally, your home loan should not exceed 40% of your monthly expenses, so even if you legally qualify, it might still be a financial strain.
2. Poor Credit Score
Everyone might have heard of a “bad credit score,” but having “no credit score” is also a cause for concern. If you have no history of repaying loans on time, banks may lack the confidence to lend to you because your repayment ability has not yet been measured. First, you can check your credit score at the Credit Bureau Singapore.
If your credit score is poor, you might want to reapply next year. A year of stable repayments to your bank can help bolster your future home loan application. If you are unable to clear your debts within a year, you may need to seek help from legal financial institutions. They might be able to help you get a home loan approved, albeit at a higher interest rate.
3. Your Income is Not Fixed
If you frequently change jobs, are a freelancer, or have undeclared income, this could also be a reason for your home loan rejection. If you are the sole borrower, Singapore home loans require a minimum annual income of S$24,000. However, if the total income of joint borrowers is calculated, the minimum income requirement is S$36,000 per year. The rules are stricter for non-fixed incomes.
Suppose you are self-employed and the sole borrower. In this case, your business must have been in operation for at least two years, and you must provide at least one year’s proof of income to verify your TDSR. However, even if verified, banks will only consider 70% of your average monthly income as the basis for your loan application. This means if you earn S$5,000 a month, your home loan will be calculated based on an income of only S$3,500. If your self-employed income is insufficient to meet the minimum requirement, you may need to consider other sources of income.
These sources of income may include:
- Commission income
- Rental income from other properties (properties owned by parents or spouse do not count)
- Dividends, coupons, and other investment-related income
- Income from your own business
4. The Loan Tenure is Too Long
The maximum loan tenure for HDB flats in Singapore is 30 years, and for private housing, it is 35 years. However, if you want to obtain the maximum Loan-to-Valuation (LTV) ratio, the age limit for both housing types is 65.
This means that if you want to apply for a home loan in Singapore at the age of 45, your maximum loan tenure will be reduced to 20 years, regardless of the property type you are buying. If you cannot meet the TDSR under this requirement, your home loan will be rejected. In this situation, it is best to find a joint borrower to help ease your mortgage burden. However, please note that the joint borrower must also be a co-owner.
Solutions to Prevent Home Loan Rejection
Getting help from an AnjiaSG home loan advisor is the most direct and simple way to have an experienced professional handle all the details of your mortgage for you.
Singapore has strict regulations for home loans, and not all of them are clear and straightforward for homebuyers.
Properly preparing your application, choosing the right bank, putting yourself in the best possible borrowing position, and strategically applying for a suitable home loan are all areas where our home loan advisors can assist you.
Imagine signing the Option To Purchase (OTP) without securing a home loan, only to find your loan application rejected without knowing why. This situation arises from acting impulsively without proper research. You can relieve yourself of this stress and let us help you!
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