Owning a home is one of the biggest investments one can make on life’s great journey; a marker of accomplishment and a declaration of future intent. The most common way of financing such a dream is through a mortgage loan. Sadly, mortgage denial happens more often than you might think, and as such it’s crucial to be realistic about how, why and the likelihood of this occurring to you.
The good news is this shouldn’t necessarily mean your dream of becoming a homeowner is shattered. There are a number of reasons why a lender may have declined your application, and being wise to them is the first step in rewriting the decision. With that in mind, here are 5 IDEAL tips for dealing with a declined mortgage.
Improve Your Credit Score
To make it as simple as possible; your credit history determines the level of risk you present to a lender. Because of this, having a bad credit rating (that is, a low one) will signal a red flag to the bank about your ability to manage debts and pay back a loan or mortgage on time.
If your FICO score is less than 620, most lenders will consider it too low to have your mortgage approved. Luckily, this is something you can work on with a few simple hacks. Start by making timely payments on your current debts, keep balances low on credit cards and also don’t close existing credit card accounts you may have. Keep in mind that improving your credit score takes time, but it’s worth doing.
Consider The Size Of Your Downpayment
Most mortgages require an upfront fee, which usually falls between roughly 5 and 25% of the property’s overall price. A lender views your down payment as a form of commitment to your mortgage; therefore, a low one does little to put their mind at ease about your ability to pay it off and your intentions in general. Because of this, there’s no point in rushing to make the initial down payment; take as much time as possible to save up for it. In this case, size does matter in terms of improving your mortgage affordability.
Compare Deals & Demands
If you have a lower earning power, consider shopping for a cheaper home, asking for a smaller mortgage, or getting someone to co-sign your loan, as these moves will make it more likely that you’re accepted for a mortgage. Compare mortgage rates to ensure you are getting the best possible deal, and to assess a little bit more detail about the criteria of each company and how it differs.
Also of note; poor asset documentation is another reason why your loan application may have been denied. Be sure to keep an accurate record of your income and assets, and prepare to show tax returns from past years and any other necessary proof of past financial behaviour. 
Property Problems
Lenders also take into account the specific home you want to buy when making their decision. This includes factors like an appraisal of the property, its location, as well as property demand in that particular area. Ultimately, this is to assess whether the lender will be able to recover their principal amount, interest owed, and other related expenses in case a borrower defaults.
If the lender thinks it’s a risky investment, or that there’s an issue with the property which will cause further problems and inconsistencies down the line, then your application will likely be rejected. Keep this in mind.
Employment History Histrionics
Having a consistent employment history is a sign that you’ll be able to repay the loan in the future. In fact, most lenders will require two years of stable employment before approving a loan. Annoying as it may be, and seemingly out of touch with the state of the modern workforce, being self-employed or job hopping is considered a higher risk factor.
If you’re keen to explore this topic further, then check out our guide on how to make yourself look financially attractive to mortgage lenders. You won’t regret it!
