Getting all the information together for a mortgage can be gruelling, especially when a mortgage lender tells you that their lending institution is unable to approve your property loan. This can leave you devastated and filled with disappointment.
It’s natural to wonder why you were denied a loan. Lending institutions have stricter standards in place today making it difficult for consumers to obtain a mortgage. It’s important to do your research and educate yourself about how the lending process works so that you can look your best to prospective lenders. Here are five examples of why a bank may be inclined to deny a home loan and ways you can learn how to bypass these difficult areas.
1. Excessive Debt
A deciding factor in whether a bank will give you a loan is looking at how much debt an applicant carries. Most financial institutions look for an individual’s housing expenses to be around 33 percent or lower based on their gross income and the consumer debt under 5 percent. If the consumer debt reaches above the 5 percent ratio, it cuts into the 33 percent that is designated for housing expenses. The higher your debt ratio, the smaller the amount of mortgage you will be able to obtain. Experts in the mortgage industry agree that those who sport a debt-to-income level higher than 50 percent are flirting with financial disaster. Keep an eye on your finances and keep your credit card debt low. Banks will give you a more favourable rating if you never live above what you can actually afford. If you have other mortgages at present, think about selling them off or secure a mortgage with a different financial institution.
2. Changing Employment
Banking institutions look for applicants that show stability when it comes to employment and a person who changes their job status frequently is a red flag. Lenders are more favourable of those that have stayed at the same job for at least two years. Moving up the ladder and garnering a better position for more money within the same company will not give you a bad rating in trying to obtain a loan. However, if you choose to go from a salaried position to being self-employed, you may have a tougher time in getting a loan, because you won’t have monetary consistency to show a lender. Mortgage lenders are cautious about lending money to those who are self-employed and who depend upon sales commission.
3. Fluctuating Credit Score
A month or two may go by in between the time you fill out your mortgage paperwork and the time it takes to finalize the loan. In this time period, it’s important to make sure you pay all bills in a timely manner. A lending institution may make several credit checks on you during this time so don’t apply for credit cards, as they will have an effect on your credit rating. Get a handle on your credit history before applying for a mortgage. There are a number of websites who will give you your credit report for no charge. If you find any discrepancies, report them immediately, as it could take a number of months to straighten out the errors.
4. Failure to Make Mortgage Payments
Failing to make a mortgage payment triggers a warning signal to a banking institution so it is imperative that you make all payments when applying for a loan. Mortgage payments are considered late if they are made 30 days after the actual due date and a bank will target you as a credit risk. Steady income and low debt ratio could allow you to obtain conventional financing even if you have one late payment during the previous year. However, if you have made more than one late payment, a lending institution could deny you a loan. Discuss any payment difficulties with your current lender to arrange a solution.
5. Details that May Fall through the Cracks
Scrutinize every form that you come across when going through the application process and make sure you comprehend all the information. You are applying for a loan that stands for a large sum of money so it’s important to provide complete and precise information to your financial institution.
Andrew Potter writes for My Online Estate Agent, the low cost estate agent that advertises properties on Zoopla, Find a Property and Rightmove.