“Your mortgage application is rejected in 2024” – when the message pops up on your mobile, the sting of denial can be unpleasant. You have dreamt of having a new home and applied for a mortgage with high hopes – only to find that it has been denied. What a dismay!!
When you apply for a mortgage, it does not necessarily mean that the bank or financial institution will accept your application right away. It may get rejected due to various reasons.
So, before you proceed with getting a mortgage, it is crucial to understand the possible reasons why your loan may not be approved. This will help in carefully planning the right strategy to avoid getting rejected. Let’s jump in.
5 Reasons Why Your Application May Get Declined
There may be several reasons for your mortgage application to get rejected. Discussed herewith are the top 5 reasons for you.
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Poor Credit Score
Applying for a mortgage isn’t as simple as just filling up the form. You should have the financial stability to repay the loan. Therefore, banks and financial institutions will require you to have a minimum credit score, though this may vary depending on the type of mortgage you want and the lender.
Your credit score sums up your debts and liabilities, and how diligently you have been paying them off. A poor credit score indicates you may not be credible in repaying the mortgage you are applying for.
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Your Debt-to-Income Ratio
If you have low debt-to-income ratio, chances your mortgage application will not be approved. The percentage determines how much of your monthly income goes towards monthly debts. If you have too many debts and not enough income or you are buying a home that is beyond your price range, then your application is likely to get rejected.
An online calculator is a good way to determine how much loan amount you are eligible for based on your income. So, if you have applied for a mortgage of £350,000 but have a high debt-to-income ratio or your loan limit is only £230,000, then your application may get rejected.
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No Credit History
Amusing it might seem but not having a credit history may also get your mortgage application declined. No credit history means you have never taken out a loan or do not use credit cards. Since the lenders do not get a credit history to evaluate your creditworthiness, they often consider it a negative profile. So, they are likely to reject mortgage approval unless they get other ways to determine your financial credibility.
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Your Down Payment is Too Small
Most lenders will require you to make down payments of 5% to 25% of your home’s total value, though some mortgages do not need a down payment. If you are planning to pay down anything less than what your lender requires, there are chances they will reject your application.
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Problem With Your Property
It always doesn’t have to be you; often the value of the property does not seem enough to justify the loan amount being applied for. A lowball appraisal of the property is considered one of the primary reasons for your application to get rejected.
How to Avoid Your Mortgage Application From Getting Rejected?
When applying for a mortgage, lenders will consider several factors to determine your home loan eligibility. If you do not meet their criteria or have a low credit score, the application could be declined. Here are a few ways you can avoid rejections and get approval on your mortgage application.
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Work towards improving your credit score
Wondering “Can I get a mortgage loan?” Begin by going through your credit report to ensure there are no errors or duplicate entries. If there are, you can report it to the respective credit bureau. Paying off your debts regularly is a sure-shot way of improving your score. You should also try to maintain a mixed bag of debts which include credit cards, loans, etc.
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Lower your debt-to-income ratio
Even if you have a high credit score, a poor debt-to-income ratio of less than 43% can be detrimental to your mortgage application. One of the best ways of addressing this problem is by paying off some of your other debts.
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Submit proper income/affordability documentation
Nothing can be more painful than finding out that your application was rejected due to inaccurate or incomplete documents. This is particularly true in the case of income proof. Submit as many valid documents as you need to prove your affordability and creditworthiness to repay the mortgage.
Conclusion
Do not wait for your mortgage application to get rejected!! It is always better to plan and watch your steps before you apply for a home loan. Building up your credit score or paying off your debts is a long-drawn process – and you should work out these factors way before applying for a mortgage.
Getting pre-approved for a loan does not mean you will finally get it. Many people have their mortgage declined after ‘agreement in principle.’ This is because lenders often perform a thorough background check to identify if you fulfill their eligibility criteria. Therefore, it is ideal to work with a mortgage broker or financial advisor who can help you avoid your application from getting rejected.
Attention: Late repayments can cause you serious money problems. For help go to moneyhelper.org.uk