Understanding why you were declined for a home mortgage loan can be a valuable learning experience because it allows you to recognize and pinpoint certain areas of your financial life that need improvement.

Here are some common reasons for mortgage application declines:

  1. Poor Credit History

Lenders look at your credit score and also at whether you have any derogatory remarks on your credit report such as late payment history, bankruptcy or unpaid collections.

Also, it’s important to know that when you apply for most types of credit, the lender will check your credit report. Most searches are recorded, leaving a footprint on your credit history and lowering your credit score.  Repeatedly applying for credit makes it look like you have problems, so try to avoid this.

  1. Insufficient Income

A lender can tell if you’re able to afford a mortgage payment by looking at your income to debt ratio. While in your head you may earn enough to pay your monthly bills and a mortgage, if you can’t adequately document this income then you will likely get denied for a mortgage.

  1. No Money Available for the Down Payment and Closing Costs

Typically, homebuyers are required to have funds available that equal 5% of the purchase price of the home plus up to 2% for closing costs (legal costs).  These funds need to be from your own resources or gifted from an immediate family member. In special circumstances the down payment can be from borrowed sources but it’s best to talk with your mortgage specialist about the rules surrounding this method.

  1. Too Much Debt

Too many side debts such as credit cards, loans and lines of credit may make your overall payments too large and may make affordability of a mortgage impossible.

  1. Problems With the Property

A denial doesn’t always have to do with the homebuyer. Sometimes a property’s value isn’t enough to support the amount of the mortgage loan being applied for and therefore is denied.

  1. Self-employed for less than 2 years

You need to prove you have a steady income by showing business tax statements for a minimum of two years.

Where to go for help if your mortgage application is declined?

There are a number of things you can do to improve your chances of getting approved next time. The first step is seeking help from aprofessional mortgage broker.  Mortgage brokers have access to a wide selection of lenders and know what options are available to you.  He/she will guide you through the steps required for a successful mortgage application.

If you would like to discuss the details of your mortgage application, please call me at 204-371-9284 or email lisag@onelinkmortgage.com.