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Last updated on December 5th, 2022 at 10:05 pm
When you apply for a mortgage loan there are situations where mortgage lenders will not approve you to get the loan you’re interested in.
Let us look at why a mortgage application may get denied.
If your income is shaky
The main goal of a mortgage lender when he evaluates your application is to determine if you’re likely to repay your loan on time.
They look at various financial factors to evaluate your chance of default, where your income is one of the key factors.
Lenders want to be sure that you have enough income and it’s consistent.
Lenders check if you have been at your current job or worked in your current field for around two years and that your salary is steady or going up during that time.
Lenders could deny your mortgage if they see any of the following signs of instability:
- Unsteady employment history
- Recent career change
- If you are a freelancer with fluctuating income and inconsistent clients
You have too much debt
Another big concern for lenders is the amount of debt you already have. If you’ve borrowed too much money, it could suggest that you may be unable to afford a mortgage.
Lenders look at your debt to income ratio, which measures how much of your income goes into paying down debt.
As they don’t want too much of your paycheck committed to paying creditors.
If your debt, including the mortgage, exceeds from 43% to 46% of your income, they may not approve your loan.
Your credit score is too low
Your credit score is an indication of how responsible you’ve been with paying all of your bills off in the past.
Depending on the type of mortgage the credit score needed for a mortgage is different. For a conventional loan if your score is below 620, then it is a sign that you are going to be unreliable in regards to a mortgage payment.
For other government-backed loans, you may be able to get approved with a score as low as 500.
If you’ve to face a mortgage loan denial, you have a few different options:
- Explore alternatives with different lenders
- Improve your financial credentials.
- Borrow a smaller loan.
- Apply with a cosigner who has the better credit and a more stable income.
Mortgage loan denials can prevent you from becoming a homeowner. Choose your options wisely.
Reference Source: The Ascent
