You’ve been waiting for a long time for the status of your mortgage application. When it takes longer than usual, you start getting anxious. Then, at last, you hear from the bank- only to find out that the bank has rejected your mortgage application. In situations like these, people will be disappointed, which can cause a significant setback in achieving long-term goals. But, all hope is not lost. You need to figure out the reason for your application’s rejection in order to get your future application approved. And even if you face rejection, what you do next will define your capability in getting that application approved.
Why are Mortgage Applications declined?
There are several reasons why lenders reject mortgage applications. Some can be highly trivial but can affect the approval of your application. In addition, lenders have been imposing stricter rules and regulations that make the approval process even harder in recent times. Therefore, knowing all the possible reasons for rejection is crucial to improving your mortgage loan chances.
Having Poor Credit History/No Credit History
Having a credit history helps lenders determine whether you will be capable of paying back your loan on time. However, the process of lenders giving you a mortgage loan can get complicated if you have a poor credit history- or even worse, no credit history at all.
High Debt-to-Income (DTI) ratio
In simple words, the DTI ratio is the relation between your monthly income and monthly debt. Lenders will not have a favorable opinion of you if you pay more debt than receive income.
Having an unsteady job
Mortgage lenders prefer that you have a steady source of income. So if you move jobs, often, it might not have a favorable impression on the lender. It is also crucial that you have specific documents to prove your income.
Taking out payday loans
Having a history of taking payday loans will give an impression of your financial capacity to the lender. So, if you take out payday loans, it might be disadvantageous for you. Other reasons may include:
- You are not a voting citizen
- You have missed giving crucial information in the application form
- Your property is not in good condition
- Making last-minute spendings on your credit card
What should be your next steps?
Now you know the possible reasons for rejection. Hence, your next step should be to encourage yourself. You might get a mortgage loan on your first try, or you might not. However, if you fail, here are some steps you can follow.
- Ask for the reason for the rejection- Finding out the specific reasons for your application’s rejection is crucial. Moreover, asking the lender directly gives you a better understanding of what went wrong. Therefore, make sure you ask for reasons so that you know what to do next.
- Improve your credit score- If you know that your credit history is not good, improving it might help secure your loan next time. You can start by making sure you pay your dues on time and reduce your debt amount.
- Make bigger down payments- Making bigger down payments will assure the lender that you are capable of paying back the loan. Therefore, make sure you save enough money to be able to make bigger down payments.
- Ask for professional help- Working with an experienced mortgage broker is worth a try. They have the skills and experience to help you with your application process, thereby increasing your chance of getting a mortgage loan. A few more things to keep in mind are-
- Have correct documents and paperwork ready
- Increase and stabilize your income
- Avoid spending too much on your credit card
Don’t give up!
Getting a mortgage loan in this day and age is a feat. Moreover, for many, their future goals and dreams depend on the mortgage lenders approving their applications. As lenders are getting more strict, you must be ahead of the game and plan according to their rules. However, even if you do face rejection, do not lose hope yet. There are plenty of opportunities for you, so shop around slowly and steadily. Demonstrate good financial practices, and in no time, you’ll have your mortgage loan- and hopefully, you will pay it off soon too!
Also read: Will debt settlement affect my credit score?