Can banks reject your home loan because of “undesirable” location?

Location is one of the important factors that determine the value of your property. The more desirable the location, the higher the value of your property.

But, can your home application be rejected because of its location? We got in touch with some local experts to help answer this question. 

According to some banks, such as Nedbank, the location of your house doesn’t have much influence on your home loan application.

“We don’t reject an application on the basis of location, nor do we influence a potential purchaser’s decision in this regard,” says Nedbank.

However, certain criteria are applied in terms of minimum specifications that a property should comply with from a residential perspective.

For example, in terms of lending, the value of the property needs to be sufficient to cover the value of the loan applied for. The property value is derived from comparable sales in the specific area which reflects the demand and supply dynamics in the open market, says Nedbank.

“Areas with a high crime rate or areas situated near mines and carbon-intensive firms will impact the value of your house over time,” says Mpho Ramatong, regional head at FNB Consumer Home Finance.

However, locations that are well maintained, safe, and closer to places of amenities such as, parks, libraries, schools, shopping centres, and social economic centres, are desirable areas to consider. Over time, such areas will help increase the value of the property.

“It’s advisable that potential buyers investigate these areas by speaking to potential neighbours about their experience in the vicinity before buying,” says Ramatong.

According to him, the bank can’t recommend the location. However, consumers can find more information about the area they are keen to buy in from newspaper reports and even ask estate agents who sell in the area.

“This information will assist them to make the best decision when it comes to property location,” he says.

What do you do if your home loan has been rejected?

It’s important to establish the reasons why the home loan was rejected. Thereafter, you need to do your research and investigate which other locations the banks would deem to be a good investment area, says Ramatong. 

Here are some reasons why your home loan can be rejected:

• Your down payment wasn’t enough: Sometimes a lender will require that you pay a certain amount as the deposit for your house. If the deposit is too small, your home loan application might be denied.
• You don’t earn enough: If the lender sees that your income is not enough to enable you to make the required monthly payments, your application will be rejected.
• Your credit score is too low: Your credit payment history plays a huge role in your credit score. Therefore, it’s important to ensure you pay your debt on time. Failure to do so will result in a drop in your credit score and lenders might reject your application. Register here to get your free credit report.
• You’re under debt counselling: The law doesn’t allow creditors to lend to consumers who’re undergoing debt counselling as that is classified as reckless lending. If you apply for a home loan while you’re under debt counselling, your application will be rejected immediately.  

If you want to see whether you qualify for a home loan or not, use this calculator.