Why a Bank Can Withdraw Your Home Loan Approval Before The Property Is Registered In Your Name?

Congratulations! Your home loan has been approved. You’ve found the house, secured the funding, and are ready to move forward with the purchase.

But what many buyers don’t realize is that an approved home loan isn't a guaranteed deal until the property is officially registered in your name. Banks can and sometimes do, withdraw their approval at the last minute, and the reasons for this could be surprisingly simple.

The Biggest Threat: A Change in Your Financial Position

The primary reason a bank will withdraw a home loan is a change in your financial position. After approving your loan, the bank may conduct a final check on your credit and affordability before the transfer is finalized. Any new financial activity can raise red flags and lead to a withdrawal. This can be something as seemingly insignificant as:

• Taking on new debt: This is the most common pitfall. It could be a new credit card, a car loan, or even financing furniture or appliances for your new home. Any new debt, no matter how small, can impact your affordability, especially if you were approved for a loan at the top end of your budget.
• Missing a payment: Failing to pay a bill, even a small one like a cell phone account, can negatively affect your credit score and trigger a cancellation. The bank's automated scorecard system can flag this as a sign of financial untrustworthiness.
• Changing employment or income: A change in your job status or a slight dip in your income can cause the bank to re-evaluate your ability to repay the loan, potentially leading to a withdrawal.

The key takeaway is to keep your finances steady between the time your loan is approved and when the property is officially registered in your name.

The Consequences of a Withdrawal

The consequences of a bank withdrawing your loan after all suspensive conditions have been met can be severe. You not only lose the house but can also be sued by the seller for damages. This can include legal fees, penalty interest, and other costs incurred by the seller due to the deal falling through. This can lead to a massive financial and emotional headache that you did not see coming.

How to Avoid the Risk

To protect yourself from this danger, you must be cautious.

• Avoid new debt: Do not apply for any new credit, open new accounts, or take out loans for any reason. If you need to finance bond or transfer costs, clear it with your bank first.
• Maintain your payments: Ensure all your bills and accounts are fully paid up during this period. Even a small, neglected debt can cause your bond to be cancelled.
• Communicate with the bank: If something changes, like your salary or employment status, inform the bank immediately. The earlier you address the issue, the better your chances of resolving it.

A home loan approval is a major milestone, but it's not the finish line. Hold steady until the registration is complete, and then you can celebrate and shop for your new home without any worries.