A mortgage puts you one step closer to buying your dream home. If everything goes swimmingly, your application gets approved and you’re off on your merry way.
However, things may not always go as planned and you may end up with a declined application. Not really ideal, especially given the current market where multiple buyers are lining up for a single property. A declined mortgage almost always means a missed opportunity.
A lender declining your application can be frustrating. And tedious since you’ll be back to square one and will potentially need to go through the paperwork and waiting game all over again. This is why it’s helpful to know the reasons why applications are rejected so you can be better prepared.
Mortgages are very large loans spread out over a long term which is why lenders use strict criteria when it comes to deciding if you are creditworthy. And there are plenty of reasons why your application can end up in a bank’s rejected pile.
To get to the bottom of this, we decided to sit down with Rosie Patterson, Betterhomes’ Head of Mortgage Services under MENA Mortgage Services banner, to get a sense of how the process works.
In this blog, Rosie shares four common grounds for denial you can avoid. Get a head start on your application by checking these out.
Your borrowing power
Your ability to repay requires that you have a steady income to support your mortgage payments. A good mortgage broker can confirm that your income and affordability are satisfactory to secure a mortgage.
To determine your borrowing power, lenders factor in your net income against your outgoings, ultimately ensuring that you are in a position to commit to the financing you are applying for.
It is important that you declare all your financial commitments upfront and avoid making credit applications whilst your mortgage application is being approved.
Credit history and score
High on the list for lenders to check is your credit history. In addition to income and debt, this is crucial because it is indicative of your future repayment behavior based on your past credit activity as well as your current situation.
Put simply, a history of missed credit payments or bounced checks bodes badly for your score. It is wise to determine your standing beforehand by requesting your credit report from Al Etihad Credit Bureau online.
“Some people also don’t know that high utilisation of credit can also affect your credit score,” adds Rosie. “So if you have a credit card limit of 20k and you use 19,500 then only pay the minimum payment every month, this affects your credit profile.”
Lenders look at more than just your income and credit score. They dig into your employment history to ensure that your source of income is reliable. If you move around from job to job too often or you have no proven track record of working for your employer, a bank can be reluctant to lend.
However, it is not unheard of that an applicant with as little as one salary credit can be granted a mortgage. With a competent broker by your side, that is.
The final item in this list happens to be one beyond your control. Aside from your own suitability, lenders go further and evaluate the stability of the company you work for.
If you work for a smaller or lesser-known employer, it impacts your chances of securing a mortgage. Also, things like your company bouncing cheques and other employees defaulting on their credit commitments have a bearing on your eligibility.
Perhaps unsurprisingly, a more common reason for declined mortgages today is associated with the industry you work in. Those employed in the aviation and travel or hotel and restaurant sectors took the brunt of layoffs and job losses since the global pandemic hit. As a result, some lenders are prone to strike down applicants from these industries.
For further reading, check out these five tips to help get the mortgage you want.
It can be intimidating to apply for a mortgage if you don’t possess the right know-how. This is where mortgage brokers play a crucial role.
With their in-depth industry knowledge, mortgage brokers can guide and support you through the entire process, ensuring you have a solid and spotless financial record and increase your chances greatly with the banks.
If you’d like to connect with Rosie or any of our mortgage brokers, visit our Mortgage Services page.