10 Reasons Your Loan Isn’t Getting Approved (Ep233)

It can be frustrating apply for loan after loan only to be knocked back. The team at Mortgage Choice have helped up identify 10 reasons your loan isn’t getting approved. Learn why your loan isn’t getting approved so you can take steps to get approval. It may be as simple as fixing one little issue.

People who are hoping to become homeowners in the near future may run into problems when it comes time to apply for a mortgage. If you’re getting ready to finance your home purchase, you should be aware of the reasons that your application will be denied. Learning these reasons gives you the opportunity to make changes to improve your chances of being approved.

1. You have an unstable employment history.

If you’ve only been in your current job for a few months, you’re less likely to be eligible for financing. Banks want to see that you have a stable source of income. Some lenders require borrowers to have held the same job for a minimum of two years prior to applying for a mortgage.

Note: This is one of the major reasons I current don’t own any property. I have only been self employed for 12 months and they banks see that as a risk.

2. You don’t have anything to put down on the purchase.

A sizeable deposit increases your chances of being approved for a mortgage while reducing the total cost of financing. Having at least 20% of the purchase price gives you a better chance of being approved while eliminating the need for lender’s mortgage insurance.

3. You have a history of late payments.

Even if you always end up paying your debts in full, having a history of making late payments will count against you. A high percentage of late payments may make a bank think twice about approving your mortgage application.

If you already have late payments on your credit report, work on consistently paying on time. Automatic debits may be the solution for forgetful borrowers.

4. You’ve filed for bankruptcy or had a foreclosure.

These derogatory items will stay on your credit history for five years or longer. You’ll have to wait it out, but having one of these items on your credit report doesn’t completely exclude you from obtaining a mortgage.

Keep your finances in order while recovering from a bankruptcy or foreclosure to boost your chances of being approved for a mortgage before the derogatory item is wiped from your report.

5. You don’t use revolving credit.

Revolving credit like credit cards helps you build up your score and establish positive credit history. Using and paying off debt is the only way to establish credit history, so it’s important for you to have some experience with borrowing before you apply for a mortgage.

If you’re wary about taking on debt, consider opening a credit card account that you use to pay for basic necessities. You can immediately pay off the entire balance to show lenders that you’re financially responsible.

NOTE: This is exactly what I have. A credit card with a really small limit which I use to pay for items like electricity and my phone bill. I then pay it off every week. This helps me avoid paying my bills late (as they automatically come off the credit card) and also gives me the revolving credit benefit.

6. You’re trying to buy a home that you can’t afford.

While you may have found your dream home, it’s important to make sure that the home is within your financial reach. Borrowers often try to justify the purchase of a property that is outside of their financial reach by saying that they will make sacrifices to free up money for mortgage payments.

But you have to be honest with yourself about how much you can afford. Obtaining a pre-approval can help guide you when it comes to finding homes that you can truly afford.

7. You’re not shopping around for a mortgage.

Being denied by one lender doesn’t mean that you will be denied by every lender. Banks have different requirements when it comes to lending.

If you’re dealing with an application denial from one bank, your best bet may be to shop around for a mortgage. Pursuing financing from other lenders also gives you the opportunity to find out if a certain bank would offer lower interest rates or fees.

Contact a mortgage broker like Mortgage Choice or get my mortgage broker to contact you by filling out this form.

8. The economy has experienced a downturn.

Economic events that occur on a daily basis can have a significant impact on the willingness of a lender to provide mortgage financing to certain borrowers.

If you are thinking about applying for a mortgage during tough economic times, you should be aware that borrowing restrictions will be tight. You may have to wait it out until you can be approved for the financing that you need to become a homeowner.

9. You’ve been dishonest about your credit history.

It’s understandable that you don’t want lenders to know about derogatory items on your credit report, but lenders will find out about these items when they request your report for review.

Telling a bank that your credit is clean when you’ve really missed payments or made late payments will just give banks the impression that you are dishonest. While derogatory items do decrease your chances of being approved, you’ll have a better chance if you are honest about negative marks.

10. Your income is too low.

Realising that your income is too low to purchase a home can be discouraging, but you do have some options. If you have the time and are qualified to do so, consider taking on a second job.

You’ll need to hold this job for at least a year before lenders will use the income from the job to determine whether you will be approved.

Another option is to go in on the home purchase with another person. You could find a cosigner or share a home with a friend or family member. Just be sure to be diligent about making your share of payments to avoid conflict.

I want to give a shoutout to Mortgage Choice who provided this guest post. I really appreciate them taking the time to write this for the On Property community and hopefully there will be more expert posts to come.