Purchasing your own home is one of the most important financial decisions you’ll make. Applying for a mortgage is the first key step in the journey to home ownership, but if you’ve found your dream home and your mortgage application is denied, you could feel at a loss.
You are much less likely to be denied a mortgage if you prepare thoroughly, so you should consult a mortgage advisor before making your mortgage application. It’s a good plan to obtain a pre-approval from the lender you choose, so you know what properties you can afford. This pre-approval is usually guaranteed for 90 days.
Reasons a mortgage application might be denied
If your application is denied, it’s because the lender does not believe you are able to make the repayments.
It’s essential that you find out why your application was denied. Make sure the lender has all the paperwork they require, as some denials are due to insufficient paperwork.
Once you know why your application was denied, you may be able to repair the damage.
For instance, if you were denied for having insufficient down payment, you could find ways to increase your down payment. If your credit rating is too low, you may be offered a mortgage if you have a qualified co-signer.
Some of the most common reasons for denial of a mortgage payment are as follows:
- You are deemed to have insufficient income
- Your down payment is not sufficient
- You have not supplied all the necessary documents
- Your income to debt ratio does not meet the lender’s requirements
- Your credit score is too low
- You have a history of foreclosure
- You have a history of bankruptcy
Restore your credit rating
Having a bad credit score, where your credit rating does not meet the lender’s requirements, is a common reason for denial of mortgage application. You should find out what your credit score is ahead of your application to make sure there are no errors on the report.If the credit score returns unfavorable, you can then take steps to restore your credit.
Making a credit plan will help. Calculate all your expenses (fixed and variable) and subtract this total from your income. Do you realistically have enough surplus for a mortgage at this time?
Keep in mind that if your application has been denied, that doesn’t mean your options have ended. Take a look at what you can do to fix your mortgage rate, and move forward with the help of a reputable mortgage advisor.