Approximately one in three mortgage applications are rejected by lenders leaving potential home owners out in the cold. There are a number of different very common reasons for mortgage rejection but essentially they share one feature in common: lack of preparation by the borrower. You are less likely to be rejected if you know what the basic requirements are by doing your mortgage homework in advance.
Ensuring you can comply with the most common criteria demanded by lenders is the obvious way to avoid rejection. If you understand the most common reasons for mortgage rejection it will assist your home owning goal.
1. Often borrowers are rejected simply because they apply to borrow too much money on a mortgage. The home they aspire to is beyond their means to realistically afford. This can be avoided by looking for properties which are within an affordable price range for your current circumstances. There is always the option of moving up the mortgage ladder as your career progresses.
2. Your credit score is a vital consideration and those with low scores will be rejected. There is the option of seeking a mortgage loan from a sub prime lender but these carry high interest rates. It is more advisable to take the time to improve your credit score in advance of applying. The higher your score the better chance of securing a mortgage with a lower interest rate. Check your credit reports at least six months prior to applying so you can rectify your score.
3. Having too much debt will not make you a good prospect as lenders assess you. If they see a high level of debt already held then the mortgage is just a further debt to take on. Ensure that you pay down as much debt as you can before applying to ensure a low debt to credit ratio.
4. Not having a decent down payment will lend more chance of rejection. Lenders have tightened their practices and the ideal down payment is 20%, though lenders will consider 10%. However it will cost you more as any down payment less than 20% will result in private mortgage insurance being added to the loan. It is possible to obtain mortgages with lower down payments from the Federal Housing Association. The best way to achieve a substantial down payment is to start saving early.
5. Not showing a steady employment history will work against you too. Ideally lenders want those who have been employed in one position for two years which demonstrates stability. An employment history within the same field is a plus. Being self employed can make it more difficult to obtain a mortgage.
These are the most common reasons why potential borrowers face rejection from mortgage lenders but it is possible to improve your chances by working on each area in advance. Being prepared is the best way to avoid disappointment and if you do match this criterion you are less likely to face difficulties with managing your mortgage.