Do you want to apply for a mortgage but are worried that your application will be denied, or have you already been denied a mortgage and don’t know how to ensure you get accepted for your next application?
Thanks to the covid pandemic, interest rates for home loans are forecast to remain low. However, lenders are becoming stricter with who they approve. For many people, this can be an automatic refusal of criteria that would have been easily accepted a matter of months ago.
What To Do When Your Loan Application is Denied?
It would help if you found out the exact reason why your application has been refused. Without this knowledge, there is no way to rectify this. Typical reasons for a refusal include;
- Changes in your employment status – For example, if you recently started a new job or were laid off.
- Credit changes or a low credit score – Opening or closing credit card accounts, making a large purchase such as a car, or taking out a personal loan can all have an impact on your credit score. To avoid these pitfalls, it’s a good idea to maintain the status quo with your finances as you approach your closing.
- Income changes – for example, if you took a pay cut
- Too much debt – If you already have a lot of debt, lenders may see your debt-to-income ratio as a red flag and deny your application.
How Good Is Your Credit Score?
The next step, if applicable, is to look at your credit scores and analyze them the way a lender would. What exactly does it say about you, and how can it be improved? A score over 740 is generally when you will benefit from better offers and loan rates, although credit scores over 620 should enable you to get a mortgage with different rates. In some cases, it isn’t bad credit that denies your mortgage application but lack of credit history.
Pay down your debt, address any errors that could be blocking your application, and address your income to debt ratio, an optimal ratio is around 20-30%, but some lenders could go as high as 45%
Talk to your lender and find out what they are looking for and how best to improve your application to get it approved. It may be that a different lender could be a better option, and you need to look at change finance to see what your options are.
There are various lenders on the market, and they will all have differing criteria for mortgage applications.
Address Employment Issues
If your mortgage application was refused due to your work history, you need to look at your commitment to work and what your previous behaviors say about you as a person. Frequent job changes could imply you are unreliable and could default on repayments due to swapping jobs repeatedly.
If you haven’t been with your current employer for long, you may simply need to wait until you build up some history and prove you are a reliable employee.