Designing a Mortgage That's Right For You!
Main reasons Why your mortgage application is Denied and What to do If Mortgage lenders reject Yours
Mortgage lenders often reject loan application requests for many reasons. Fortunately, you should not give up hope -you have options to improve your credit score, reapply and get your mortgage application approved.
Nobody loves getting the news that their mortgage application was denied, especially after passing the pre-approval stage. If you are a first time homebuyer, this frustrating experience is worse now that you feel ready to have a home, but you cannot understand why your mortgage lender thinks otherwise. You may wish to know why this happens, and the following explanations, probably unlike your rejection letter, include accurate information describing your situation.
Mortgage lenders abide by different rules in various jurisdictions while denying or approving mortgage applications. Most mortgage lenders follow additional internal regulations when vetting your loan application. Here are the main reasons lenders reject loan applications.
Mortgage loan lenders consider your credit history before they can approve your application. To get your mortgage applications approved, you may want to keep your credit balance below 35% of the available credit.
A large deposit in your account in the last two months can lead to mortgage applications denial unless you explain the source of the money. Mortgage lenders often assume that you borrowed the money because you could not meet the reserve requirement or afford to pay your down payment.
If you recently lost a job or changed an employer, you may get your mortgage applications denied because of unstable or unpredictable salary income. Mortgage lenders often require a first time homebuyer to prove a continous working history with one employer for at least two years.
Mortgage lenders consider you a high-risk borrower if you already have a personal loan, a new credit card, or other debts. Sometimes even when credit is not offered, many credit applications can affect your mortgage applications. Different outstanding loans can affect your debt to income ratio. Lenders prefer an applicant with a credit ratio that is less than 43%.
You can mistakenly or knowingly omit crucial information when you fill your mortgage applications. As a first time homebuyer you may think such information is irrelevant, but your loan officer can reject your application because you did not disclose this information upfront. A mortgage broker can help your avoid such mistakes.
Most mortgage lenders require you to deposit a 3% down payment if you apply for a conventional mortgage. If you are a first-time homebuyer, ensure that you consult with your mortgage broker for information about such requirements before applying for a mortgage.
Fortunately, denial is not the end of your dream to own a home - rejection should never be a dead end, but a turning point towards careful planning.
It would be best if you began by finding out why lenders reject your mortgage applications. Most mortgage lenders tell you why they rejected your application in the rejection letter. Ask your loan officer to explain to you what you do not understand in the letter.
Reduce your debt obligation by paying down some of your high-interest debts. Your income debt ratio will reduce once you lessen your monthly burden to make room for housing payments.
Lower your DTI ratio by finding additional ways to generate income. Mortgage lenders will have more confidence in your repayment capability if you provide proof of higher monthly income.
Obtain a copy of your credit history from credit reference agencies to confirm their information about you. Correct any wrong entry in your subsequent mortgage applications.
If you do all the above and lenders still reject your mortgage applications, consider making a bigger down payment, finding better collateral, opening a savings account, or choosing a better property. Finally, find a mortgage broker who understands what mortgage lenders look for to help you match the lender's profile.
For more information contact us, the Mortgage Designers, Your Victoria BC Mortgage Brokers of Choice today!