Why Was Your Mortgage Application Rejected?

Finding a home you love is only the first part of the property-buying journey. Unless you’re in a position to pay cash, you’ll also need to arrange financing. This can be a long, complicated process and going through it all only to have your mortgage application rejected at the last moment can feel like a crushing blow.

However, knowing the most common reasons why a mortgage will be rejected will give you the best chance of avoiding this situation.

Poor Credit Rating

Having a poor credit rating is the most common reason for a mortgage rejection. However, this doesn’t necessarily mean you have a history of problem debts, late payments, and defaults. It could be that the major credit reference agencies hold incomplete or incorrect records about your financial history.

You’re entitled to see what details are kept on your credit file, so ask Experian, Equifax, and TransUnion for a copy and make sure everything is in order. By law, any errors or omissions must be corrected as soon as they’re spotted.

Using Too Much Credit

Even when you always pay your debts on time, if your credit history shows you’ve often taken out short-term finance such as payday loans, a lender may be nervous about advancing you a large mortgage.

Overuse of credit cards can also be an issue. If you’re always pushing your credit limit to the max, that isn’t usually a sign of a healthy budget, and your application will suffer because of it.

Insufficient Income

Even if your credit history is good, it could be that you’re asking to borrow too much for your income. Before the financial crash of a decade ago, banks were willing to lend many times your annual income.

Credit availability is much tighter now. If the bank decides you don’t earn enough to cover your mortgage payments with plenty to spare, they’ll reject your application.

Inadequate Down Payment

If you can put forward a large down payment, then this suggests your finances are in good shape. Unfortunately, the opposite is also true. If your down payment is small compared to the value of the property, your application will be viewed with suspicion. Some lenders might hike the interest rate they offer you, but most won’t want to take the risk of approving your loan at all.

Your Spending Habits

You may think that what you spend your money on is your own business, but that’s not the way a mortgage lender sees things. During the application process, they’ll scan your financial history before making a decision. If their research shows potentially dangerous habits, such as using online casinos or always spending your entire income each month, they may hold this against your application.

Minor Errors on Your Application

It may seem like petty nitpicking, but even small mistakes on your mortgage application form can mean an instant rejection. In these days of computerized application processing, common sense isn’t always as common as you’d think.

Before submitting your application, make sure every fact is correct. Check that there are no silly spelling mistakes, and that you’ve not left anything out, no matter how unimportant it may seem.

Limited Lender Choice

Lastly, each mortgage lender has different lending criteria, and some will be much stricter than others. To increase your chances of success, you should apply to several lenders most likely to approve your request, and not waste time with those who don’t suit your situation. This is where consulting a professional mortgage broker is extremely useful. Their knowledge and experience will give your application a head start.

With all that being said, your best shot at knowing exactly where you stand in the loan process is to contact a lender to review your finances and try to get you pre-approved for a mortgage. Click to check out Resilient Realty and Renovations preferred lenders. 

Taking out a mortgage is one the biggest financial decisions made in life, and it doesn’t always go smoothly. Before you apply, try and overcome these common objections a lender may have – it’ll save you plenty of rejection heartache.

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