5 reasons your mortgage application was rejected
Imagine you’re planning to buy a new home for you and your family. You’ve just got the perfect one with a nice view. Everyone in your family is eagerly waiting to meet the bank and the mortgage specialist.
And here comes the bad news, your mortgage application has been rejected.
Rejection is never pleasant, no matter how small the matter is. And it can be even more painful when the rejection is about something as significant as your mortgage.
While most of the application gets the green light, occasional problems may arise, leading to a denial by the lender about your mortgage.
Your mortgage can be rejected for many reasons . However, there are a few common reasons why your bank will reject your application.
Continue reading this article if you want to know what the reasons are and how you can navigate these roadblocks to get your approval.
5 reasons your mortgage application was rejected
According to a report from The Guardian, statistically one in every six mortgage applications had been rejected in the past. The process and the requirements of the application can be rigorous and confusing sometimes.
So, if you’ve already been rejected and can’t figure out why, there’s nothing to worry about. Just go through the following five reasons to figure out what possibly went wrong with your application.
Low credit score
Your credit score plays an important role in your mortgage application. It’s considered the number one factor that will decide whether or not your application will get approved.
No bank will provide you with a big loan unless you have a good record of paying back money. You need to keep your credit card balance below a certain percentage of your available balance to become eligible for the mortgage.
Once you apply for the mortgage, the bank will contact the credit bureau to find out your credit score. The required score varies from place to place.
While some banks and lenders consider a 30% utilisation rate to be responsible, you may still get a mortgage for a higher percentage than this.
So, if you’re planning to get a mortgage, it’s important to work on building up your credit score. You can get a credit card designed for poor credit and make sure all payments are made promptly.
High total debt service ratio
Another reason your mortgage application might get denied is a high debt-to-income ratio. Banks or lenders will use your Total Debt Service ratio (TDS) to assess your ability to pay off a mortgage.
You can calculate the TDS by summing up your family’s property taxes, monthly mortgage payments, and other payments of debts, and finally dividing the total number by the gross monthly income of your family. You can also use a debt service calculator to find out how it works.
Your Total Debt Service (TDS) ratio can be high for many reasons. For example, if you’re buying a home that’s above your price range, you will increase the TDS ratio. You can fix this issue by increasing your down payment.
However, it’s crucial to maintain the required TDS ratio set by the bank or the lenders. Even if you have a good credit score, you can still get rejected due to high TDS.
Property concerns
Sometimes, you may have pre-approval for your mortgage, which is good. However, when it happens, the lenders may want to consider the property’s condition while reviewing your application.
While you assumed your property would be in good condition while getting the pre-approval for the mortgage, you could still get denied by the bank if the property requires a lot of fixes.
Based on your previous history, the bank may ask for a full appraisal of the property. If they find any issues in that appraisal, your application will be immediately rejected.
Factors like the location of the property, its current shape, water supply condition, etc can lead to the denial. You can always go for a second appraisal or consult with a mortgage broker to avoid such situations.
Risky employment situation
While you can still get a mortgage with bad credit but good income, your employment history can be a reason you will get rejected.
The bank will take your and your spouse’s employment history into account while assessing your mortgage application. It’s because the lenders want to find out if you have the ability to pay back consistently.
It will create a roadblock if they find your job situation to be a bit shaky or your income is uncertain. While a secure and stable job with a high salary will make the process smoother, things will be entirely opposite if your situation is less conventional.
Also, if you’re self-employed, getting a mortgage can be tricky. You can always solve such issues by providing more documents that prove your ability to pay the money.
Inadequate cash flow
The flow of your income Vs. the payment you’re making every month is also a key factor that may lead to a rejection. Lenders or banks will consider your cash flow to make sure all the debt have been cleared in due time.
If you’re a freelancer or have a seasonal job, which ensures your payment during only six months of the year, you may face a cash flow issue during the other six months. Even if you have a high annual income, the bank can still reject your application.
Conclusion
Facing a mortgage rejection can be discouraging, but it’s not the end of everything. There are still a lot of things you can do to ensure you eventually get the mortgage.
While moving forward, take a moment and reassess the situation, maybe scan through this article again. It will help you figure out why your application was rejected in the first place. Instead of panicking, think about what you need to do for your next application.
I would highly recommend you to look beyond the banks. There are quite a few good mortgage investment corporations and private lenders who can help you with the flexible structure of the mortgage deals that the banks can’t do. Look for such companies and you may succeed this time!
