Mortgage Rejected by the Bank? Find Out Why!

When your mortgage application is rejected by the bank, we should not immediately feel discouraged! It could be that your mortgage application is rejected because of other factors.

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Lifestyle & Tips

House prices are increasing every year, making many Indonesians choose to opt into using the mortgage system known as KPR, to buy housing. This banking product can indeed help you buy your dream home as soon as possible. However, just like applying for KTA (loans without collateral), mortgage application can be rejected by the bank even though we have prepared everything that is needed.

When your mortgage application is rejected by the bank, we should not immediately feel discouraged! It could be that your mortgage application is rejected because of other factors. We should first ask the reason why our application was rejected. Although we cannot apply for a mortgage at the same bank or have to wait a few months later, at least we know the cause and can find a solution from the bank directly.

Let us go through some of the reasons why your mortgage was not approved by the bank, and the solution!

Home Checklist

Cause of Denied KPR and the Solution

1. Applicant’s Name is in BI Blacklist

Our mortgage could be rejected by the bank because we had a history of missed or late credit payments, or in short, because of having a bad credit score. Bad credit scores can occur because of tardiness in credit card bills, late payments, and others. If your credit and loans are not properly paid, your name can be included in the BI blacklist due to bad IDI History.

Immediately check the status of your BI checking or credit score here and immediately pay off the loan arrears if there is one. If you feel that there is no problematic credit, ask for a Certificate of Settlement from the credit provider and attach the letter in the mortgage application file to minimize rejection.

2. Income is not sufficient for installments

When checking your financial background, the bank will assess whether your income is sufficient to pay installments each month. However, what should we do if our mortgage is still rejected although we feel that our income is sufficient?

In addition to seeing the amount of your income each month, the bank will also check whether we have other installments, such as installments for motorbikes, cars, or electronic devices when we apply for mortgage. If the existing installments plus the mortgage installments exceed 30-40% of your income, it is likely that the bank will reject the mortgage application since there is a possibility that we will be unable to pay mortgage installments on time.

Immediately pay off any ongoing debts and installments before reapplying for home ownership loan!

3. The applicant’s age does not match the target bracket

Like paying credit card installments, banks provide various mortgage term options for customers. Depending on the bank we choose, the term offered can vary from 5 to 30 years. Usually, the maximum age limit for applicants at the end of term is between 55 to 60 years old. Therefore, if at the age of 41 we want to apply for a mortgage with a tenor of 20 years, chances are your application will be rejected by the bank.

4. The location of mortgage object is not strategic

A house that is purchased using the mortgage system will be used as collateral at the bank until the installments are paid off. This means that the house will be confiscated or taken over by the bank if there is bad credit. Hence, the building location is an important factor in the approval of a mortgage application by the bank. Here are some location criteria that have high risk of being rejected by the bank:

  • Too close to a riverbank
  • Too close to a cemetery or house of worship
  • Located in a disaster-prone area
  • Does not meet road access requirements (The minimum road width is 3 meters and can be passed by two cars)
  • Located in a T-junction

5. You are self-employed or a contract worker

It is undeniable that the status as permanent employees or civil servants will find it easier to obtain mortgage approval from banks. On the contrary, if your status is a contract worker, self-employed or freelance, the bank tends to be more hesitant to approve your mortgage application.

In addition, we need to pay attention to the minimum working period set by the bank. Usually, it is easier to apply for a mortgage loan if we have worked more than 2 years in the same company, both for private employees, civil servants, entrepreneurs, and professionals. Usually, after that period of time, our employment status is more stable and we would get more trust from the bank.

However, since each bank has different rules and conditions, we might find a bank that has a more flexible policy or apply different requirements. This is why it is important for us to do some research before applying for a mortgage.

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6. The object of mortgage is a ready-to-build lot

Banks usually prefer mortgage objects in the form of finished houses because in the case of bad credit, banks can confiscate and auction the mortgage object. If this is the reason why our mortgage application is being rejected, do not worry because there are other financial products that can help us build houses. Namely building loans available at several private and state banks.

7. Insufficient Down Payment Provided

One other reason why your mortgage application can be rejected is because the down payment provided is insufficient. Generally, the amount of down payment that must be provided at the initial stage is around 30% of the price of the house. If we pay less than that, it is almost certain that our mortgage application will be rejected by the bank.

To avoid your mortgage application rejected for this reason, make sure you have enough funds to pay the requested down payment. If the current savings are not enough, you should reconsider your strategy. You can either choose a simpler type of housing or consider borrowing some funds from relatives.

If your mortgage application is rejected by the bank, do not lose hope! Look for other banks that have terms and conditions that suit your current conditions. This is the reason why some people choose to apply for a mortgage to several banks at once.

Apart from the appraisal factor, we can also compare the amount of installments each month, as well as different bargains offered by each bank (flat interest, free provision fees, etc.). Do not hesitate to ask several different banks about their mortgage products to find the right choice!