4 Common Reasons Why Your Home Loan Application Could Get Rejected

by Susan Paige on August 28, 2018 · 0 comments

Applying for a mortgage is one thing; getting approved is another. Many times, buyers who thought they qualified for the loans have been turned down, often to their dismay. Even people with good credit scores have been turned down on some occasions.

To avoid such disappointment, it’s vital that you do your homework before lodging an application. Why? Because getting rejected for a mortgage further tarnishes your credit history. When other lenders find out that you’ve recently been rejected by a mortgage company, they will scrutinize your application even more closely, which reduces your chances of being approved. Also, after planning the purchase of a home for months or years, getting rejected at the last minute can be tough to deal with.

Below we discuss four common reasons for housing loan application rejections. Keep these reasons in mind to avoid suffering the same fate;

  • Poor credit history

You probably saw this coming. Credit history is one of the first things mortgage lenders look at when processing applications. If there’s even a small issue with your recent history, your chances of getting approved quickly diminish. Two things, in particular, are prioritized; your credit score and derogatory remarks on your credit report such as bankruptcy or foreclosure. For this reason, begin working on your credit worthiness months before the application.

  • Lack of sufficient down payment

Home loan eligibility is also dependent on your ability to raise the down payment. Without the required amount, you won’t be approved. The amounts typically vary, but you should be prepared with around 20 percent of the amount you wish to borrow. So, if you’re looking for a $400,000 home loan, make sure that you have at least $80,000 in cash. Some loans, especially government backed options, require less (often 5% or slightly more) down payment. But, having 20% of the amount gives you invaluable cushion.

  • Insufficient income/asset documentation

To be granted a loan, you must prove to the lender that you have the capacity to pay back the money. Lenders usually determine this capacity by reviewing your financial position. Do you have a stable source of income? Are you making enough money? Can you pay the installments plus the interest without putting a huge strain on your finances? Do you have the documentation to support this? If your answer to any of these questions is a NO, you may not be approved for a loan.

  • Issues with the property

Finally, it doesn’t always have to be an issue with the borrower. Sometimes it’s issues with the property, especially valuation. Lenders can only extend you a mortgage loan commensurate with the value of the property in question. If the home is worth $400,000, you deserve a $400,000 mortgage at most. If your valuation is wrong and the lender feels that you’re asking for more than the property is worth, your application can be rejected.

Keep these four points in mind when applying for a home loan to avoid last minute disappointments.

 

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