5 Reasons Your Mortgage Application Was Declined

5 Reasons Your Mortgage Application Was Declined

Owning a home is one of the biggest investments and greatest achievements one can make in life. The most common way of financing such a dream is through a mortgage loan. Applying for a mortgage can be quite stressful but with some planning, the process should be able to go on with minimal hassles. Sadly, mortgage denial happens more often than you think. This doesn’t mean your dream of becoming a homeowner is shattered. There are a number of reasons why a lender may have declined your application. Here are some of them to help you increase your chances of getting approved next time:

Poor Credit History

Your credit history determines the level of risk you present to a lender. Having a bad credit rating will worry your lender about your ability to manage debts and even pay back the loan on time. If your FICO score is less than 620, most lenders will consider it too low to have your mortgage approved. Luckily, this is something you can work on. Start by making timely payments on your current debts. Keep in mind that improving your credit score takes time, but it’s worth doing.

Down Payment Is Too Small

Most mortgages require an upfront fee, usually about 5-25% of the property’s overall price. A lender views your down payment as a form of commitment to your mortgage; therefore, a low one does very little putting their mind at ease. Take as much time as possible to save up for the down payment. Remember, bigger is always better!

Insufficient Income or Asset Documentation

Your loan will be denied if it looks like you won’t be able to afford making the repayments. If you have a lower earning power, consider shopping for a cheaper home, asking for a smaller mortgage, or getting someone to co-sign your loan. Compare mortgage rates here to ensure you are getting the best possible deal. One more thing, poor asset documentation is another reason why your loan application may have been denied. Be sure to keep an accurate record of your income and assets, and prepare to show tax returns from past years.

Problems with the Property

Lenders also take into account the specific home you want to buy. This includes factors like an appraisal of the property, its location, as well as property demand in that particular area. Ultimately, this is to assess whether the lender will be able to recover their principal amount, interest owed, and other related expenses in case a borrower defaults. If the lender thinks it’s a risky investment, your application will be rejected.

Inadequate Employment History

Having a consistent employment history is a sign that you’ll be able to repay the loan in future. In fact, most lenders will require two years of stable employment before approving a loan. Being self-employed or job hopping is considered a higher risk factor. You’ll be required to provide more proof that you can handle the loan and even then, chances of being denied are still high.

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