Everyone dreams of owning a house where they will spend the rest of their lives peacefully. However, not many people are fortunate enough to become the proud owner of a beautiful house. The home prices are rising and the mortgage rates are also high. When you apply for a mortgage, it is uncertain whether your application will be accepted or not. Many factors are involved in a successful mortgage application. If you know why your application may be declined then you will be able to increase the chance of getting a mortgage for your dream home. Here are some of the reasons why your mortgage application may be declined.
Bad credit history
This is the most common reason for not getting your mortgage application approved. When you apply for a mortgage, the lender will go through your credit history and see if it’s in good standing. If you couldn’t pay off your credit card bills or utility bills then it affects your credit score. It shows that you are unable to pay off your debt. So, the lender will be reluctant to give you any more loan. Your mortgage application will be rejected if your credit score is poor as the lender will assume that you will be unable to repay your mortgage amount on time. If you had a County Court Judgment (CCJ) ever issued under your name or if you have applied for bankruptcy ever, then these will be reflected on your credit score report. So, you will have very low chance of getting a mortgage. Before you apply for a mortgage you should make sure that you have a good credit score. You should always pay off your debts on time.
Not sufficient credit history
Having credit card is a bad thing, but not having it at all is also bad. Some people only use cash for their expenditures. They choose not to apply for any credit card or personal loan ever in their lives. So, when they apply for a mortgage the lender doesn’t know anything about their credit history. They won’t be able to conclude whether you will be able to pay your mortgage on time or not. There should be sufficient information on your credit report that shows that you can handle credit well. If you are thinking of applying for a mortgage then you should build up a good credit history. You should have one or more credit cards, use them sometimes and pay off the balance on time. You should make sure that you don’t miss any monthly payment; otherwise, your credit score will be affected.
Low down payment
Down payment is considered to be an investment. When you buy a house, getting a mortgage isn’t enough. You must give some down payment as well. The more down payment you pay, the more lenders will be convinced that you are financially strong. So, your chances of getting a mortgage will be higher. As a thumb rule, you will have to pay 5% to 25% of the total home value as down payment. So, you need to make some good savings before you apply for a loan.
You must have a consistent employment history to get a mortgage. Most lenders ask for minimum two years of continuous employment. If there is a gap in your employment history then it will affect your credit score. It shows that you had been in financial difficulty for some time. If you switch jobs often, it will give an impression that you are not stable. Also, it indicates that you might not be able to pay off your debts on time. The amount of mortgage you get depends on your affordability. So, your employment is a very important factor in deciding whether to approve your mortgage application or not.
Insufficient or incomplete information on the application form
You must fill in your home mortgage application form very carefully. You must ensure that you give all the required information. You must not hide any essential information, like any gap in your employment or any loan you already have, etc. If you don’t provide enough information then there is high chance that your application might be rejected.
It can be very frustrating if you get declined for a home mortgage, especially if it’s your first time. You must have dreamt of your own house and did all the calculations for months before applying for the mortgage.Not getting your application approved can be very disappointing. To avoid such situation, it is wise to build up your credit scores and talk to a financial adviser to learn about the mortgage requirements.
You should make sure that your application is strong enough that there is least chance for it to be rejected. In case you get declined, it doesn’t mean that you won’t be able to apply for a home mortgage again. You should understand why your application had been declined and try to fill up the gaps in your application. Your circumstances may change, you may become financially more sound and stable.
Then you can reapply and get the loan. If you have a good credit history, stable employment and enough money to pay your down payment then you will definitely get a home mortgage. If your credit score is good, you might get a mortgage at a low interest rate. Buying a home is one of the major milestones of a person’s life. You should do your homework well before applying for a home mortgage.