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Why have I been refused a mortgage?

Now you are ready to take that giant step of getting a mortgage to get your own space and apply to lender. The refusal of your mortgage application not only breaks your heart but your motivation too. This is not only frustrating but also forces you to change your entire plan. It’s therefore better to go through the common checkpoints and reduce the chances of getting your mortgage refused by the lender. It seems like a normal thing but in 2019, 22% of the total applications were denied and that’s a huge number. In this article, we will try to jot down the common points which can be the reason for the denial of the mortgage.

How are applications evaluated?

The lender will assess your application based on certain criteria. This criteria ranges from lender to lender. They have various ways to pull data about you and your credit score. They then decide whether you are suitable as per their mortgage plans or not. This also includes whether you are capable of repayment in situations of interest fluctuation. Like this, the lender decides your profile. There might be a chance that your application gets rejected by one but will be accepted by the other. So you need not lose hope here.

which can be the reason for the denial of the mortgage.

Reasons for Refusal

Undocumented Income or Inconsistent Income

Though most of the people think credit rating being the major reason for the rejection of the applications. But as per lenders, not able to prove the income being the major reason for the denial of loans. The lender asks for the evidence of your income, bank statements, tax returns etc. but if he doesn’t find any consistency, those applications straight for rejections. If your income is growing year by year, even if it is less, is a possible candidate for approval. But huge fluctuations in income of borrowers is again a red flag for the lenders. This can be worse if the borrowers are not able to provide the documentation of the income. One of the other reasons related to income is that you are not earning enough with respect to the mortgage you are applying for.

Poor credit Ratings

Poor credit rating is the first filter applied to applications by every lender of the world. Lenders do really take a close look at the credit score to decide who is eligible for the loans. A FICO credit score of 740 or higher is best and below 620 can mess up your chances of getting a mortgage. Poor credit rating doesn’t mean you won’t be getting a loan anywhere but then you have to get a large deposit or a guarantor to give more confidence to the lenders. An expert can help you out in the process in getting you to find the right lender in the market.

 

Debt to Income ratio

Lenders want your debt to income ratio to be 43%. That means your debt or monthly repayment should be 43% of your monthly income. Lower than this might increase the chance of rejection of the mortgage application.

Small Down Payment

Lender will ask the question about your down payment you can make and will decide the amount of loan they can provide based on the certain criteria. There might be a chance that a borrower is asking too much of a loan with a very small amount of deposit. That won’t fit many of the lender’s profiles and they can reject the application. The best way is to figure out how much you can deposit and then consult an expert on what kind of lender would be suitable for you. Since too many rejections can affect your credit rating so better be sure about the lender and the criteria before approaching them.

Many Credit applications / Debts

When trying for the loans, lenders check your credit worthiness. Every loan you have borrowed from the lender will be marked in your credit history. It also gives an impression that the income is not stable or the budget management is not done correctly. So try to avoid applying too many credits before a year or so when you are trying to get a mortgage. Similarly having too much debt already reduces the chances of getting the mortgage. It’s better to finish at least the debt with high interest before applying for a mortgage. You can improve this situation by making complete regular payments (credit cards, bills etc.) on time.

Administrative Mistakes

The lenders or the borrowers, where they are human, there will be the chance of human errors. Generally, most of the details are transferred from paper to computers. Make sure with the lenders if the information has been uploaded correctly from your application. In many cases, lenders are incapable of pointing out the specific reasons. In that case, lenders are liable to provide you with the reference of a credit agency to help you out.

Borrowers should make sure their address should be reachable by posts otherwise inform the lenders if there is any problem. To verify these lenders, check the voter list to confirm your identification and where you live. So be sure to enroll yourself on the voter list.  Few of the borrowers have recently moved to the UK or have been living in the UK for less than 3 years. There are chances that the lender is not willing to lend to new arrivals. In that case, check with an expert for the lenders who don’t have such criteria.

As we can see, this is not a stagnant situation. With little precautions and planning, one can be able to secure the mortgage. If it feels overwhelming, talk to us.

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