Getting a home loan in Kenya can be a crucial step toward owning property, but many applicants face mortgage rejection due to easily avoidable mistakes.
While mortgage lenders have strict criteria, understanding these requirements and preparing adequately can significantly increase your chances of approval.
Lenders are now using a risk-based approach to calculate interest rates, meaning individuals with higher risk are charged higher rates, while those with strong credit scores benefit from lower rates.
Here are some top tips to help you avoid mortgage rejection and secure your home loan.
Table of Contents
1. Understand Your Credit Score
Your credit score plays a critical role in the mortgage approval process. Lenders use it to assess your financial responsibility and reliability. A poor credit score indicates a higher risk of default, leading to rejection.
Tip
- Obtain your credit report from a recognized credit bureau and check for any inaccuracies.
- Pay off outstanding debts, including credit card balances and personal loans, to improve your credit score.
- Maintain a good credit history by paying bills and debts on time.
- It’s also important to note that if you have never taken a loan, your risk is higher as lenders do not have data to gauge your risk. Therefore, if possible, take loans that you know you can pay to build a credit score.
READ MORE – How to Improve Your Credit Score for Property Loans
2. Maintain Stable Employment
Lenders want to see consistent income over a long period, preferably from stable employment. Applicants with irregular or short-term job histories are often viewed as high-risk borrowers.
Tip
- Aim to stay with the same employer for at least 2 years before applying for a mortgage.
- If you’re self-employed, ensure you have a solid record of earnings and maintain proper financial documentation.
3. Save for a Down Payment
Most lenders require a down payment, which can be anywhere between 10% to 30% of the property’s value. Having a substantial down payment not only reduces the mortgage amount but also shows lenders that you’re financially prepared.
Tip
- Save at least 20% of the property’s value to increase your approval chances.
- The more you can put down, the lower the loan-to-value ratio (LTV), making you less of a risk to the lender.
Example: If you’re looking to buy a home worth KES 10 million, saving a down payment of KES 2 million (20%) significantly boosts your mortgage approval chances compared to a 10% down payment.
READ MORE – How to Save Money for a Home Down Payment
4. Reduce Your Debt-to-Income Ratio
Lenders assess your debt-to-income (DTI) ratio to ensure that you can manage the mortgage payments alongside other financial obligations. A high DTI indicates that you’re stretched thin financially, leading to potential mortgage rejection.
Tip
- Aim for a DTI of less than 40% to increase your approval chances.
- Pay down your debts before applying for a mortgage to reduce this ratio.
Example: If your monthly income is KES 100,000, your total debt payments (including credit cards, loans, etc.) should not exceed KES 40,000. Lowering your debt obligations will improve your DTI and help you qualify for a loan.
5. Be Realistic About Your Budget
Applying for a mortgage amount higher than what you can reasonably afford is a common mistake. Overestimating your financial capacity can lead to rejection, as lenders will scrutinize your ability to make monthly repayments.
Tip
- Use a mortgage calculator to determine how much you can comfortably borrow based on your income and financial obligations.
- Stick to properties within your price range to ensure you qualify for the loan.
Example: If your monthly income is KES 150,000, and the mortgage repayments would be over KES 70,000, lenders may reject the loan based on affordability concerns. Applying for a lower mortgage aligned with your budget will improve your chances.
READ MORE – Buying a House: Have You Budgeted for These Costs?
6. Submit Complete Documentation
One of the most common reasons for mortgage rejection is incomplete or incorrect paperwork. Lenders require a thorough review of your financial records, employment details, and personal information.
Tip
- Gather all necessary documents, including proof of income, bank statements, tax returns, and identification, before applying.
- Double-check that all paperwork is accurate and up-to-date.
7. Get Pre-Approved
A mortgage pre-approval is an evaluation by the lender to determine whether you qualify for a loan and how much you can borrow. Getting pre-approved demonstrates to sellers and lenders that you’re a serious buyer with secured financing.
Tip
- Approach your preferred lender for a pre-approval letter before starting your property search.
- Ensure that your financial situation remains stable during the pre-approval process.
Conclusion
Securing a home loan in Kenya can be a straightforward process if you take the necessary steps to prepare. By understanding these you can improve your chances of mortgage approval.
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