What to do if the loan is rejected?
Does the bank reject your loan application? Do not be discouraged and immediately adopt a more positive dynamic because, even if the bank does not have to justify a loan refusal, you can inform yourself to find out which aspects of the practice they were blocking. Is it the debt ratio? The contribution level? A bank overdraft? This step is important as not all banks have the same allocation criteria. This return from the bank then allows you to improve your practice and thus increase your chances of getting your mortgage.
The overdraft: often prohibitive to obtain a loan
For some banks, in fact, the bank overdraft is a prohibitive element to obtain a mortgage. Other banking institutions are less careful and favor an analysis based on other data of the borrower’s profile. “My credit application was rejected due to my bank overdrafts with a large public bank, even though I had a large contribution. But a credit bank agreed to follow me for my real estate project”, remarks Mélanie, happy owner of an apartment in the Paris Region. “The bank’s first rejection is always a bit stressful, especially since we have a time limit included in the compromise to find a loan offer. But in the end, it worked out well,” she adds.
The condition precedent for obtaining a mortgage
The compromise or promise to sell generally includes a condition precedent for obtaining a mortgage. If the buyer does not obtain the financing, the sale cannot be finalized. However, it will be necessary to present proof of one or even more bank refusals.
Why do banks reject certain files?
You will have understood that some elements of the practice can be causes for refusal of the loan. The bank overdraft, and more generally the management of accounts entails a presence of agios, which highlights poor management of your accounts to your advisor. But that’s not the only reason. A debt ratio of over 33% is another, just like the level of savings, the rest to live after the mortgage, the contribution level, professional stability or the health of the borrower … In other cases, the wear rate can exclude certain profiles (e.g. borrowers with health risks).
Professional stability is a key element in taking out a mortgage. In fact, the bank will rely on your income to establish your debt capacity according to a threshold that may not necessarily exceed: 33% of your income. But it doesn’t stop at your debt ratio or the amount of your salary. The banker is also interested in your type of employment contract. Are you on CDI? Are you old in the company? Is your trial period validated? So many questions that will reassure or not the banker who evaluates the interest rate and the granting of the loan based on the risk factor. If you are self-employed or have a fixed-term contract, you must prove that you have been stable for at least two years. But if you find yourself in this situation, getting a loan can be more complicated, especially if you are borrowing on your own.
The contribution level or duration of the loan
While some banks accept no-contribution loans, also called 110% credit, most require a contribution. from From 10% to 20% minimum of the purchase cost. Sum that will cover the expenses related to the purchase, in particular notary fees. Note that they reach between 7 and 8% of the selling price in the old versus 2-3% in the new.
The wear rate
The wear rate is the maximum rate to which banks must refer when financing individuals. That is to say that the real estate rate they offer you is framed. And all credit-related costs are integrated into the total cost of the loan, which must not exceed the famous usury rate. The purpose of fixing this rate is to protect borrowers. However, in some cases, and due to very low funding rates, it could be excluded for certain borrower profiles. The usury rate is defined every quarter by the Banque de France.
Insurance of the borrower
Therefore, the health of the borrower can be a blocking element for taking out a mortgage. And this, despite the Aeras agreement, which aims to give access to credit for risky profiles. In some cases, the cost of mortgage insurance is so high (therefore with significant risks for the bank) That the PR (annual percentage rate) exceeds the wear rate. In this case, the bank cannot finance the individual.
Choose substitute borrower insurance
Borrowers now have the option to change their borrower insurance and choose the cheapest offer. They can do it:
- Before taking out the mortgage (and the bank cannot return to the proposed real estate rate);
- One year after taking out the mortgage (15 days before the anniversary date);
- And every year on the anniversary date (Bourquin amendment).
However, they have to abide by some rules, in particular the condition of equivalence of the guarantees (i.e. the chosen contract must have the same level of guarantees as the banking contract and the notice period: 15 days for the Hamon law and two months for the Bourquin law).
How to get a home loan despite the bank’s refusal?
- Review your loan application file and clean up your accounts by paying off your current credits, for example;
- It goes around other banks;
- Contact a real estate agent (online or in an agency) to help you;
- Enter the competition for your borrower insurance (brokers or online comparators can also support you in this process).