Applying for a mortgage is a real nail-biter. But, by being aware of why your application may be denied, homebuyers can put themselves in a far better position when applying for a mortgage. Getting a mortgage is the single most substantial financial commitment we are likely to make – so no great shakes that it ranks as one of the most stressful life events.
If your mortgage application is declined, there are several things you can do to improve your chances of success the next time. And an important piece of advice: don’t rush off and apply to another lender, as each application will show on your credit file as a hard credit check.
Too Much Debt
Any debt you have on store cards, credit cards, or other types of loans will be considered when you apply. If you have a large amount of debt, then a mortgage provider may consider this a risk and be concerned you may be overextended. So, if you are applying for a mortgage within the next twelve months, think about paying off some of the debt, like store cards, as soon as possible.
Your Prior Track Record
Mortgage lenders will examine your financial history, including past loan repayments and how financially responsible you have been. If there are any hints that you have mismanaged any loans or missed any payments, this could raise some red flags, and the lender may be hesitant to grant you a loan.
You’re not registered on the Electoral Roll
Mortgage lenders will refer to the electoral roll to confirm details such as the address you put on the application and that you are who you say you are. Not only that, registering to vote will boost your credit rating with the top three credit rating agencies, further increasing your chances of a successful mortgage application. We need to point out that the longer you stay at one address, the better indication to the bank or building society that you are stable.
If you are not on the electoral roll, you should sort this out immediately. Not having this information accessible could result in you being denied your mortgage application. Registering on the electoral roll is so easy and doesn’t cost anything.
Your Deposit is Inadequate
If you can’t offer a significant deposit, you’re less likely to be approved for a mortgage, and if you are, the rates offered to you won’t be favourable. When you have a small deposit, the lender will have to finance a greater amount towards the property. Plan ahead and save as much as possible – this will also go a long way towards showing the lender that you are a serious contender for a mortgage.
Affordability is one of the most critical factors a bank or lender considers before deciding on your mortgage application. This makes sense – if it appears you won’t be able to make the repayments, a bank is less likely to lend you money. Most mortgage providers have online calculators that indicate how much you may qualify for based on your earnings. So, if you apply for a mortgage that is £205,000, but your calculated loan limit is £195,000, your application will be unsuccessful.
Although rare, mistakes do happen – one of the most avoidable reasons for a declined mortgage application, i.e. wrong information – for example, something as simple as an incorrect house number on the address or some other small but significant detail could result in a declined application. So make sure all of your details are correct before submission and double-check everything with your mortgage advisor if you are using one.
The Age Factor
Some mortgage lenders target a particular demographic, and if you don’t fit these criteria, you may find your mortgage is not approved. Most mortgages are designed to be paid off over twenty-five years, and if you’re older, some lenders may worry about your ability to continue earning and servicing your mortgage repayments.
All the reasons for refusal certainly seem overwhelming – but take heart, a lot of reasons for your mortgage application being declined are easily resolved. Some fixes may take time, but it’s never impossible.