Ok, so you just heard from your bank, through a nicely worded letter or an SMS, that your mortgage application was declined. By the time you will finish reading the decision, there will only be one question on your mind: WHY? This is the question that we hope to answer through this article. And we will also try to answer the next important question: What to do next?
One of the most common reasons for a mortgage application being declined is poor credit history. Lenders usually check your credit history through your credit report. A credit report indicates credit history and is simply a record of how responsible you are in repaying debts, how many applications you made and it now also includes a credit score. If you have a poor credit history, then your credit report might include defaults, court judgements, whether you are director of a business as well as listing every application you have made to lenders over a period of time. These are good indicators to lenders about your financial situation as well as conduct. The results of your credit check can indicate to a lender that you are too risky. Hence, to ensure that mortgage or loan applications are given the best chance at an approval in the future, make sure that your credit report is in order. Pay off your current loans as much as possible and if you do have to get another one, be responsible enough in making your repayments on time. Bear in mind that one of the keys to maintaining a good credit report is by paying all debts ON TIME.
Having no credit history can be another potential stumbling block for a lender when they are trying to make an assessment. Today, lenders use your credit report as a major factor when making the decision on whether to approve your credit application. Another common reason why your mortgage might have been declined is that you have a debt- income ratio that is not suitable to that particular lender. Lenders use varying ratios to assess servicing a loan. Different lenders also use different sources and amounts of income at times. It is important that you can afford any loan you are applying for, so make sure that your income can service the debts, a key factor that will not be overlooked by a lender. Responsible lending practices, which are required by law, requires lender and brokers to make enough enquiries and to verify those enquiries. These enquiries are to review and substantiate a borrowers’ affordability as well as their loan requirements when they are making an application. Consolidate debts where possible, ensure you are declaring all of your income, and make payments on time, will all assist you in obtaining the loan approval you are after.