Not all mortgage applications are accepted. It’s extremely rare that any of my clients are declined for a mortgage, but it is possible. In fact, many clients come to me after they’ve been declined by a bank or through another mortgage broker.
There is a multitude of reasons why a mortgage might be declined. Understanding these reasons and how to present your financial information to lenders to avoid being declined is one of the main advantages of working with a seasoned mortgage broker.
Why Are Mortgages Declined?
Credit history is one of the most important factors in getting a mortgage. When an applicant consistently pays their credit card bill and other regular expenses on time, their credit score will be significantly higher than someone who doesn’t. Since credit can be a determining factor in mortgage applications, low credit scores should be improved as quickly as possible. Talking to a broker well in advance of your mortgage application will mean you have time to generate and execute a plan to improve your credit score.
Another major reason why mortgages are declined is because of a high debt ratio. Ideally, the amount of debt you have should be under 40% TDS (total debt service ratio) of your gross annual income. Rearranging finances and paying down debt is another task that’s best done well in advance of your application, but there are often faster solutions as well.
You Changed Jobs
Stability is one of the big factors lenders look for in a mortgage application. Typically, a job you’ve stayed with for over two years is considered stable. If you’ve recently left or lost a job, the chance of your mortgage being accepted is lowered. For those who are self-employed, it gets slightly more complex to demonstrate stability, but it is absolutely possible.
You Accepted Money From Unknown Sources
If you collect a portion of your down payment money through relatives or friends, lenders may see those unknown deposits as red flags. It’s always a good idea to maintain a detailed paper trail so your lender knows where that money is coming from. The lender will likely want to look at your bank account where the down payment is stored and may have questions about specific transactions.
Solution: Get a Pre-Approval
A pre-approval gives you a chance to see the maximum amount a lender might offer you, and estimate your payments and interest. This is a great way to plan ahead and acts as a signal that you’re ready to finance the purchase. It also gives you extra time to prepare for your mortgage, which means you won’t lose out on that dream house because you haven’t quite lined up your finances.
What Should You Do If Your Mortgage Application Has Been Denied?
One of the main roles of a professional mortgage broker is to present your financial information to the lender in a way that showcases your readiness to buy. If you’ve been denied, don’t despair! Get in touch with me today; I’ll help you identify where the problem in your previous application was and how we can fix it.