Why Your Bank Declined Your Mortgage Application and What to Do Next
Securing a mortgage is a crucial step in realizing your dream of homeownership or becoming a property investor. However, we also recognize that sometimes, despite your best efforts, your bank may decline your mortgage application. In this blog post, we'll explore the common reasons behind mortgage rejections and provide actionable steps to navigate through these challenges.
Insufficient Credit Score:
Your credit score matters, and lenders usually have minimum credit score requirements. If it's low or you have a history of late payments or defaults, it could impact your mortgage approval chances. You can boost your credit score by paying bills on time, limiting credit inquiries, and paying down debts.
Income and Job Stability:
Lenders want to see a steady income for mortgage payments. Any work history gaps will require a sufficient explanation. There are also additional minimum employment history requirements if you are in a casual role or have recently changed industry.
High Debt-to-Income Ratio:
Lenders look at how much of your income goes to debt. If it's too high, it's a red flag for them. Paying off your small loans such as credit cards and car loans are some of the common ways to reduce your DTI ratio.
Low Property Valuation:
All lenders require a valuation to be done on your contracted property, and sometimes the value could be lower than the contract price. In that case, you will have to increase your loan to value ratio to borrow more or take more money out of pocket to fill the gap. We can help provide upfront property insight before you sign a contract, and also dispute low valuation when it occurs .
Insufficient Down Payment:
While low down payment programs exist, most banks want at least 10-20% down to mitigate risk. Aim for 20% if possible. We can also help assess your eligibility for any government grants that are currently available.
Action Plan After Loan Denial
First, ask the lender to explain the denial reasons fully so you can address them properly. Remaining with the same lender may give you an advantage for reapplying after improving your case.
However, you should also consider speaking with a specialised mortgage broker who can suggest alternative lenders and loan programs you may qualify for now.
They'll guide you in strengthening your application for success on the next try. With persistence and a proactive approach, an initial mortgage denial doesn't have to stop you from achieving your homeownership dreams. The team at Investors Mortgage is here to help set you on the pathway to approval. Contact us today!
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