What to Do If Your Home Loan Application Is Declined | Barter McKellar

Buying a home is an exciting journey, but having your home loan application declined can be a frustrating setback. Many buyers rely on financing to secure their property, so when a bank rejects an application, it can put the entire transaction at risk.

However, a declined home loan does not mean the end of your homeownership dream. There are several steps you can take to understand the reasons for the rejection, improve your financial standing, and explore alternative financing options.

At Barter McKellar, we specialize in property law and conveyancing, helping buyers navigate legal and financial challenges in the property transfer process. In this guide, we explain why home loans get declined, what to do next, and how it affects property transfers.

1. Why Was Your Home Loan Declined?

Banks assess several factors when evaluating a home loan application. Understanding why your loan was rejected can help you take corrective steps. The most common reasons include:

A. Poor Credit Score

A low credit score signals to lenders that you may have trouble repaying the loan. Late payments, defaults, or high debt balances can negatively affect your credit profile.

B. High Debt-to-Income Ratio

Banks analyze your debt-to-income ratio (DTI) to determine whether you can afford additional debt. If your monthly expenses and existing debt repayments are too high relative to your income, the bank may decline your loan.

C. Insufficient Income or Unstable Employment

Lenders require proof of stable income to approve a mortgage. If you are self-employed, have irregular earnings, or recently changed jobs, the bank may see this as a risk factor.

D. Loan Amount Exceeds Affordability

Banks perform affordability assessments to ensure that borrowers can comfortably repay their loans. If the loan amount requested is too high, the application may be declined.

E. Issues with Property Valuation

Banks conduct property valuations to confirm that the home is worth the loan amount. If the valuation is lower than expected, the bank may reject the application or offer a lower loan amount.

F. Missing or Incorrect Documentation

Incomplete or inaccurate paperwork can cause loan rejections. Lenders require:
✔ Payslips and proof of income
✔ Bank statements (typically last 3–6 months)
✔ Proof of employment or business registration (if self-employed)
✔ Credit report and financial history

Tip: If your home loan was declined, ask the bank for a detailed reason so you can take corrective action.

2. What to Do If Your Home Loan Is Declined

A declined home loan does not mean you cannot buy a home. Here’s what you should do next:

A. Improve Your Credit Score

If your loan was declined due to bad credit, take these steps:
✔ Check your credit report for errors and correct them.
✔ Pay off outstanding debts and avoid taking on new loans.
✔ Make payments on time to improve your credit history.
✔ Reduce your credit utilization (keep balances below 30% of your credit limit).

Tip: South African consumers can request one free credit report per year from credit bureaus like Experian, TransUnion, or Compuscan.

B. Lower Your Debt-to-Income Ratio

If you have too much debt, consider:
✔ Paying off credit cards, personal loans, or store accounts before reapplying.
✔ Consolidating debt into one lower-interest loan to reduce monthly payments.
✔ Increasing your deposit amount to lower the loan value.

Tip: Banks prefer borrowers with a DTI ratio below 30%. If your monthly debt repayments exceed this, work on reducing your financial obligations.

C. Apply with a Different Bank

Different banks have different lending criteria, so if one lender rejects your application, another may approve it. Consider applying with:
✔ A different commercial bank (FNB, Absa, Standard Bank, Nedbank, Capitec).
✔ A mortgage originator who can submit applications to multiple banks.

Tip: Mortgage originators can negotiate better interest rates and increase your chances of approval.

D. Consider Alternative Financing Options

If traditional banks decline your loan, you can explore alternative home financing solutions, such as:

✔ Rent-to-Own Agreements – Lease the property with the option to buy it later.
✔ Private Home Loans – Borrow from private lenders or property investment groups.
✔ Seller Financing – Some sellers offer financing directly, eliminating the need for a bank loan.
✔ Government Housing Subsidies – If you qualify, explore options like FLISP (Finance Linked Individual Subsidy Program) for first-time homebuyers.

Tip: Be cautious with private lenders and always consult a property attorney before signing agreements.

3. How Does a Declined Loan Affect Property Transfers?

If your Offer to Purchase (OTP) includes a bond condition, your loan rejection can impact the transaction.

✔ If the OTP has a "bond approval condition", the sale will be cancelled automatically if financing is not secured within the agreed time.
✔ If the OTP is unconditional, you may be legally bound to proceed with the purchase, even if you don’t get financing.

Tip: Always include a bond clause in the OTP to protect yourself in case your loan is declined. If unsure, consult a conveyancing attorney before signing.

4. Steps to Take If Your Loan Is Declined During a Property Transfer

If your loan is declined after signing an OTP, act quickly to prevent losing the property:

✔ Renegotiate the Offer to Purchase – Request an extension to secure financing.
✔ Find a Co-Signer – Having a financially stable co-signer may increase loan approval chances.
✔ Increase Your Deposit – A larger down payment may convince the bank to reconsider.
✔ Apply for a Lower Loan Amount – Reducing the bond amount can improve affordability.

Tip: If the seller is unwilling to wait, be prepared to explore alternative properties within your financial range.

Why Choose Barter McKellar for Property Transfers?

At Barter McKellar, we help homebuyers navigate financing issues, legal complexities, and property transfers. Our team of expert conveyancers and property attorneys ensures:

✔ Guidance on legal and financial options for buyers with declined loans.
✔ Review of Offer to Purchase agreements to include protective clauses.
✔ Liaising with banks and lenders to assist in resolving financing issues.
✔ Smooth property transfers even in complex situations.

Need Legal Advice on Property Transfers? Contact Us Today!

If your home loan was declined, or you need legal guidance on property transfers, our team is here to help. Contact Barter McKellar today for expert property law assistance.