How to turn your declined bond into a detour, not a dead end

“A declined home loan application can feel like a closed door, but it's actually a starting point to rehabilitate your credit score, for a better outcome in the next few months,” says Bradd Bendall, National Head of Sales for BetterBond.

“A rejection of a bond approval is often a signal to fix the part of your profile that the bank found too weak, whether that is affordability, credit history or documentation.”

“In a housing market where approval rates are improving, buyers who take the time to reduce their debt, correct flagged credit issues and improve affordability can come back stronger,” says Bendall. “Lending conditions in South Africa’s current economic climate are favourable and with home loan approvals currently at 63.5%, a year-on-year increase of 3.8%, the odds of success are actually in your favour if you take the time to rehabilitate your profile.”

However, if fuel prices and household costs keep rising because of tensions in the Middle East, affordability may become more challenging. “This is why acting quickly to improve your chances of success when applying for a bond is even more critical,” says Bendall. “Knowing what you need to do to improve your chances – not only the second time but also in the face of economic headwinds – will greatly improve your chances of approval.”

Work with experts

“A bond originator can play a key role in helping you understand why an application was declined and what needs to change before reapplying, typically within six to twelve months,” says Bendall. The first step is identifying the reason for the refusal. According to Bendall, banks generally reject applications for three main reasons: affordability, credit health or inaccurate information.

1. Affordability

“Affordability is one of the fundamentals of applying for a bond,” says Bendall. “You have to know how much you can afford to pay on your bond each month, taking into account your income and monthly expenses.” An affordability calculator can help buyers estimate what they can comfortably repay each month, based on their income and expenses. As per the National Credit Act, bond repayments cannot exceed 30% of your gross monthly income.

2. Poor credit health

Your credit score is one of the most important factors in determining your home loan affordability. However, a poor credit score doesn’t determine affordability – it determines eligibility and creditworthiness. A good credit score is established over time, says Bendall. “It may sound counter-intuitive, but having some credit can be a good thing when applying for a bond. It shows that you can honour a financial commitment.”

If you do have accounts, make sure the minimum amount is paid each month and on time. This helps build a healthy credit rating. If you fall behind on payments for accounts or credit cards, it will affect your credit rating. Set up autopay or reminders for all accounts so that your payment history is not tarnished by late payments. Bendall says banks are sceptical of applicants who have even the slightest arrears on their accounts.

In the months preceding your next bond application, avoid unnecessary credit applications. Frequent micro or small loans will signal financial distress and significantly impact your credit profile. They raise concerns, and declined credit applications negatively impact your credit rating. Keep an eye on your credit score by accessing a free credit report from any of the major credit bureaus. You are entitled to a free credit report each year. This provides a detailed breakdown of past and present accounts and can be used to improve your credit score. Check for any mistakes and ensure that the amounts owed on accounts are accurately reflected.

“Use knowledge of your credit profile to pay off what you owe, starting with the accounts carrying the highest interest,” advises Bendall. “While this won't erase your history instantly, it improves your debt-to-income ratio.” If you are struggling with any credit, keep creditors informed and try to make payment arrangements. It won’t immediately improve your credit score but will help improve your credit health over time. Information on your credit profile relating to unpaid accounts or late payments will remain on your profile for up to five years, so reducing outstanding debt will count in your favour.

3. Misinformation

“Being untruthful on your bond application is considered fraud by banks,” cautions Bendall. You should not overstate your monthly income, exclude existing expenses or debt, or provide inaccurate information about your employment history.

If any misrepresentation is discovered, the application may be rejected immediately. This can also negatively affect your ability to be considered for future applications, adds Bendall. “In some cases, the bank may also view you as a higher-risk applicant, which could affect the terms offered, including a higher interest rate.”

Preparation is key to bond success

“Getting pre-approved can significantly strengthen your application when applying for a bond,” says Bendall. “It not only acts as a credit safety net, but it also arms you with all the information you need about what you can afford to pay each month and how much you need to have saved for a deposit.”

The pre-approval process includes a credit check and uses the same documents required for a home loan, giving you a clear and realistic understanding of what you can comfortably afford to repay each month. Make sure you have recent supporting documents ready for submission. These include a copy of your ID, salary slips and bank statements.

This application, which can be done online at no cost, also improves your chances of bond success. “BetterBond’s data shows that 95% of pre-approved clients are ultimately approved by a bank. It also sends a strong signal to sellers that you’re a serious buyer who’s ready to move forward,” says Bendall.

With the right guidance and a focused plan to rehabilitate their credit profile, many buyers who are initially declined can strengthen their financial position and successfully secure a home loan within a year. “What feels like a ‘no’ initially can often become a ‘not yet’ and, with the right advice, a successful approval usually follows,” concludes Bendall.