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Whether you are looking to purchase an investment property or simply a home for you and your family, having your mortgage application declined can be totally devastating. As you read the rejection letter (or email), you can feel all your hopes and dreams for the future fading away, leaving you in a state of despair.
Although having a mortgage application declined is not ideal, it doesn’t have to be the end of the world. The fact is that just because it’s been declined this time, that doesn’t have to mean that it’ll get declined again. By taking a selection of useful steps, you can significantly increase the chance that the next mortgage application that you submit will be a success.
The guide below will help you to understand why your mortgage application may have been refused and what steps you need to take to help increase your chances that your application is successful the next time that you apply.
Why was your mortgage declined and how can you fix the problem? Below is a guide to everything that you need to know.
Poor credit history
One of the most common reasons why a mortgage application would be denied is because of a poor credit history. To determine if this might be the problem, it’s a good idea to contact credit referencing agencies so that you can determine if you have bad credit and what the cause of it is. Usually, bad credit is caused by defaults on payments or not earning a high enough amount of money each month.
Having a poor credit history can be a total nightmare, as it can take years to repair it. However, if you take advantage of some of the best credit repair companies on offer, which can be found through Credit Marvel, you should be able to speed up the process. Once your credit score has been repaired, as long as you have a healthy deposit to offer, you shouldn’t have a problem getting a mortgage and a home of your own.
Too many credit applications
Have you applied for too many credit cards? If you’ve applied to gain credit too many times over the past year, it will have a negative impact on your credit score. Whenever you apply for credit, a credit search is performed by the lender. These searches leave a ‘footprint’ on your credit score, which can be negative if the credit requested is declined.
You can’t do anything about the credit that you have applied for in the past, all you can do is ensure that you don’t apply for any other credit while waiting to be approved for a mortgage. Don’t apply for any form of credit until you have successfully got a mortgage, as otherwise, your application may continue to get rejected.
Too much debt
Are you already in debt? If you are already in debt, this can impact your ability to get new credit, such as a mortgage. That’s why mortgage advisors always recommend paying off any debts beforehand, as being in debt can be highly detrimental when it comes to taking out a mortgage.
If debt is the reason why your mortgage application has been denied, then the answer is simple – pay off your debts. Spend some time paying off your debts and getting your finances back into a healthy position. By doing this, you will significantly increase your chances of successfully applying for a mortgage, so this is something that is worth doing.
Taking out payday loans
Did you know that payday loans can impact your ability to get credit? The fact is that payday loans will show up on your credit history for six years after taking them out, which means that having had a payday loan at any point in the past six years could harm your chances of being accepted for a mortgage. The reason that payday loans are seen as being a negative thing is because they suggest that you’ve been unable to get credit in the past, which is why you’ve had to take out a payday loan over a bank loan, for instance.
There isn’t much that you can do in regard to payday loans. If you’ve already taken the loan out, all you can do is ensure that you make the repayments every month without fail and never miss one. Over time, the fact that you’ve taken out a payday loan will become less of an issue in regard to your credit score, so it may be a case of waiting a year or two to reapply again.
Not earning enough
Another reason that your mortgage application may be rejected is because you aren’t earning enough money. The fact is that for you to be accepted for a mortgage, it must be seen as being affordable for you, which is why if you don’t earn enough money to cover the cost of the mortgage, your application is likely to be declined.
If you don’t earn enough, it can be difficult to know what to do. Of course, you could ask your boss for a pay rise or look for a higher paying job. However, if that isn’t an option, then it could be worth considering saving a higher deposit to help supplement the fact that you earn a low income. This could work, but it’s important to bear in mind that it isn’t guaranteed.
Perhaps that reason that your mortgage application has been declined is because you have a deposit that is too small. While some lenders are happy to accept smaller deposits, others require a higher deposit amount to be able to offer a mortgage. So if your mortgage has been declined, it could be due to having a deposit amount that is too low.
A small deposit causing your mortgage to be declined is an easy fix. All you need to do is spend some time saving up additional funds so that you can offer a higher deposit amount. The best way to save up money and quickly is to set a small budget to live on and then put anything extra away. It could only take a few months to save up the amount that you need; it’s just a case of being willing to lead a more frugal life.
Having a mortgage application rejected is never a nice experience, particularly when you’ve found a home that you love. However, the good news is that by taking note of the tips above and implementing them, you can significantly increase the chance that your next mortgage application will be successful.