Historically low interest rates mean that the credit market for home buyers is currently very favorable. But even in today’s flexible mortgage market it is not always easy to take out a home loan, even if all income requirements are met. Banks simply do not like what they themselves define as ‘risk groups’. And whoever is a part of it often realizes it only when he or she wants to take out a loan. But what strategies can an aspiring residential buyer use if the bank does not want to borrow? We look at four popular tactics to bypass (or change) the bank manager.
The criteria to determine whether someone is creditworthy.
The criteria that banks use to determine whether someone is creditworthy enough to be able to take out a residential loan (or mortgage) often seem incomprehensible, especially for those who see their loan application refused. Banks do not only pay attention to the current income of prospective borrowers, but they include all sorts of criteria in their consideration to determine the risk that a loan will not be repaid.
An unstable professional situation, an independent activity, a somewhat older age, no family that can guarantee (or as banks increasingly demand nowadays, family who want to become co-owners and thus become debtors) or too small own capital, all reasons for the bank to refuse a home loan.
Still, people who have denied their loan application do not have to despair immediately. There are a number of ways in which they can improve their financial position. And there are opportunities to obtain a loan from agencies that also accept borrowers with a risk profile.
- Save for a larger own capital.
Banks always adjust the risk of a loan against the amount that is borrowed, which makes sense. For a lower amount to be borrowed, the bank will also accept (slightly) more risk. If the prospective home buyer can contribute 20% or more of the purchase price himself, many banks will relax their requirements. A larger own capital is usually a sign for the bank that the prospective borrower is more involved in his investment and will do everything to preserve its ownership.
- Apply for a loan from the Flemish Housing Fund.
These are the loans that cover up to 100% of the cost of the house at a very low interest rate, the loans from the Flemish Housing Fund are very popular with young house hunters. The Housing Fund is also an alternative for those who see a loan refused at a traditional bank. After all, the conditions imposed on the income and the professional situation are much smoother.
The amounts that can be borrowed are limited and depending on the location of the house (core city or not). The income of the home buyer must also remain below a certain limit. Furthermore, the buyer must also demonstrate that he or she is sufficiently solvent to be able to “meet the normal family needs” after the monthly payment. The buyer must also be able to pay the notary fees himself.
- Convince the bank with a good story.
With the help of pre-programmed rules and the criteria mentioned above, banks determine almost automatically whether or not someone is eligible for a home loan. Nevertheless, a bank manager still has some margin to grant a loan to someone who, according to the rules and criteria, should not be eligible.
That is why it is important to prepare a good story. That story must of course also be supported with all the necessary documents during the meeting with the bank manager.
A well-filled savings account or other capital holdings (movable or immovable) must therefore certainly be mentioned in such an interview.
Anyone who does not have that can demonstrate sufficient solvency with the aid of proofs of rent payments over the past few years, certainly if the rent amount is higher than the amount to be paid.
Those who already have other loans may account for them as student debt or as a smart investment, so that the bank does not interpret them as an additional risk factor.
Someone with an independent activity could consider presenting a clear overview of the trading activities with a well-studied business plan, so that the income from that independent activity becomes more predictable for the bank.
- Take out a private loan.
Banks and the Flemish Housing Fund are the first institutions that are considered when it comes to taking out a home loan, but there are other possibilities. A private loan can be concluded with any person, company or institution that has financial possibilities.
These are not always the most obvious options. The person or company that wants to lend money in this way must of course place its trust. If the borrower shames this trust due to bad luck or incorrect financial planning, there is not only a financial problem but often a personal break in the relationship between the borrower and the borrower.
Yet a private loan is sometimes a suitable solution, and often the only one. Especially for a prospective borrower who is actually sufficiently solvent but who cannot take out a loan from a bank or the housing fund for a special reason, the private loan can offer a solution. Private loans are often concluded between family members but sometimes also between an employer and employee, for example.
Conclusion? Never say ‘never’ to a potential home buyer who does not immediately get a loan from the bank. Even if it seems unlikely that anyone will ever be able to take out a traditional loan from a commercial bank, there are always ways to improve a credit situation or at least to present it better at the bank.
And if that does not help, a government loan or a private loan can still offer a solution. So be sure to let your local real estate agent advise you to assess whether buyers are creditworthy or not.
Let us think ahead in the process. All documentation is in jugs and jugs and you have signed the loan agreement. This does not mean that you are immediately fully attached to your loan.