Recommendation points
As practice shows, banks are less and less likely to refuse potential borrowers. However, there are a number of reasons for refusal, which are best known in advance. After all, insufficient income is the main, but far from the only reason for refusing to receive a loan..
Income and authenticity of documents
As already mentioned, the main reason for refusal to obtain a loan is considered to be insufficient income: the average income in Moscow is now much lower than the average level at which the bank is ready to finance the purchase of the most ordinary one-room apartment in Moscow. And if a year ago, wealthy clients were those whose income per family was $ 1.5-2 thousand, now this income should be at least $ 2.5 thousand. It is the income per family member that is one of the main indicators for a positive or negative decision bank.
By the way, a common misconception of potential buyers is that banks only take into account “white” income. The situation has changed a long time ago, and the popularity of mortgage programs was largely facilitated by the fact that banks take into account the situation of their clients, who receive salaries under various “gray” schemes, and take into account income “in envelopes.” Recently, cases have become more frequent when the borrower provides certificates not signed by the head of the organization (sometimes this is the only possible way to confirm the “gray” income).
However, this does not mean that the bank can be easily defrauded. There are times when the borrower has relatives or acquaintances “in office” who can draw up “fake” contracts for part-time work. In 90% of cases, it is possible to identify a fake signature or income. And this may well become a reason for refusing to receive a loan. By submitting fake documents or withholding information, the borrower condemns himself to the possibility of a negative answer and at the same time may end up on the “black list” of borrowers, which some banks exchange with each other.
In addition, the reason for refusal may be insufficient work experience in a new job – even a highly paid one. If the client is on probation, then the bank will offer him to wait with the loan until it ends. In addition, in case of doubt about income, banks offer the loan amount at their discretion, most often lower than the one requested by the citizen..
The client’s biography is also important for the bank. This is, of course, not about his personal life (although sometimes about her too), but mainly about his professional life. When a borrower cannot confirm his work activity over the past several years – and suddenly, for no reason at all, becomes the chief accountant of the company without having a specialized education, then he will most likely be denied a loan. The fact is that if a borrower with such a resume loses his job, it will be extremely difficult for him to find a replacement with a similar income..
Lack of funds for a down payment
Most banks now offer programs with a down payment of 10% of the cost of the purchased apartment. However, the borrower needs to have more funds to pay insurance premiums and realtor’s commission, as well as other registration costs. And before, in case of a lack of money for these expenses, banks turned on a red light in front of a potential borrower. But now this reason is becoming more rare – most often the same bank is ready to issue a consumer loan for the first installment. And in some banks, subject to a number of conditions, it is possible to get a loan without a down payment. But for this, the income must be “white”, the apartment must be bought only on the secondary market, and the full cost of the apartment must be indicated in the purchase agreement.
Choice of housing
Of no small importance for the creditor bank is not only the identity of the borrower, but also the actual object of the pledge, that is, the apartment. As a rule, the bank announces the requirements for the apartment purchased under the mortgage in advance. Typical requirements: the house in which the apartment is located should not be in a demolition plan or belong to a dilapidated housing. The apartment must be suitable for living, have a separate entrance and be used for its intended purpose. In addition, at the time of the conclusion of the apartment sale and purchase agreement and during the term of the loan agreement, the apartment should not have unregistered and unauthorized redevelopments, re-equipment and redevelopments. In the documentary history of the apartment, there should not be court decisions as title documents, the appeal period of which has not expired. In 2006, due to the rise in prices, banks became less demanding of the chosen apartment, there were proposals for lending rooms in communal apartments, and even apartments in panel Khrushchevs began to be lent (selectively).
However, according to this parameter, the number of refusals is insignificant, because realtors are well-versed in which apartment will be checked by the bank. Lending is possible even in “problem” houses with wooden floors, but in this case the borrower will have to pay insurance at an increased rate, and in fact there will be no savings from the purchase of such housing.
As for the primary housing market, there can be much more refusals in connection with the object: the developer’s lack of all the necessary documents for construction, and incorrect agreements with equity holders, and many other nuances that lead to the lack of a legal basis for preliminary payment of the future apartment, and, consequently, its pledge to the bank.
What are the common reasons that lenders refuse a loan? Is it primarily based on credit history and income stability, or do other factors such as employment status or outstanding debts play a significant role? I’m curious to understand the criteria that lenders use to assess borrowers’ eligibility and the potential impact these factors can have on loan applications.