Savvy Finance

Why Might A Morgage Application Be Denied?

So, you want to buy a house! That’s great news but like most people, you will likely need a loan from a mortgage lender to help you buy the property you’re interested in.

Unfortunately, getting a mortgage loan isn’t always straightforward. Several factors could affect your eligibility for a mortgage so there is a chance that your application could be denied. 

If your application is rejected, you might still be eligible for a mortgage with another lender. But you might need to turn to a mortgage broker who has access to specialist lenders that offer loans to people in your situation. 

Here are some of the reasons why your mortgage application could be denied.

#1: Too much debt

When assessing your application, the mortgage lender will want to make sure you have the financial means to pay for your mortgage. If you have a lot of debt, a lender will see you as a financial risk if your debts mean you don’t have a lot of money left over each month to cover the  cost of mortgage payments.

As such, it is wise to clear your debts or pay off the majority of them before you make your mortgage application. This will improve both your affordability and your credit score, so your chances of mortgage approval will be increased. 

If you’re struggling to pay back what you owe, there are ways to write off debt with the help of a debt management company or insolvency practitioner. If you take this step, you may need to turn to a specialist lender when getting a mortgage as some mainstream lenders will consider you a risk if you have had trouble managing your debt alone. 

#2: A poor credit score

To maximize your chances of getting a mortgage, you should improve your credit score if it is low. This is because some lenders will consider you a financial risk, especially if you have a poor credit rating because of missed credit card payments, bankruptcy, or CCJs. 

To find out what your credit score is, sign up to a credit reference agency, such as Experian, Equifax, or TransUnion. If your credit score is low, you can improve it by…

*Paying your bills on time

*Clearing your outstanding debts

*Checking for fraudulent activity on your report

*Making sure you are not financially linked to somebody with a bad credit rating

It’s sometimes possible to get a mortgage with a bad credit score via a specialist lender but you are unlikely to be offered the best rates. 

#3: Insufficient income

Lenders use income multiples when assessing how much to lend to their customers. Most lenders use a multiple of 4.5 but some will use a bigger multiple for higher earners.

If you fall below the lender’s earning threshold for the mortgage you require, your application will probably be rejected. When this happens, you have several options. You could…

*Consider a cheaper property

*Apply for a joint mortgage with a friend or partner as the combined earnings could improve your affordability

*Find a lender who will accept your income (it’s best to do this with the help of a mortgage broker as they will know who to contact)

Finally

These are just some of the reasons why a mortgage application might be declined. 

To improve your chances of getting a mortgage, consider our suggestions and seek help from a mortgage advisor who will give you further advice about eligibility and affordability.

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