If you’re looking to buy a home, you’re most likely going to do it with the help of a mortgage. However, if you’ve made an application recently and been rejected, it can feel like a smack in the mouth. Why would lenders turn you down?
Here are a few of the most common reasons for mortgage loan rejection;
1. Poor credit history
One of the best things that you can do to improve your finances is to improve your credit history. Your credit history can be negatively affected by many things, be it missed bills, going into arrears, or even failing to pay rent on time. What’s more, lenders don’t like it when a borrower has no credit history, either. In some cases, taking on a credit card for a while, using it, and repaying it consistently can help prepare you for a bigger credit application and may avoid the chances of mortgage loan rejection.
Some negative marks on your credit report are more serious than others. County court judgments, or CCJs, typically only manifest if you are unable to pay back a creditor and do not get in contact with them. They are always worth avoiding and can make it harder to obtain a mortgage than other negative reports. That said, there are bad credit mortgages for those with a CCJ who have managed to improve their finances in the years since receiving a judgment.
3. You’re applying too often
It’s not just your credit history that’s going to affect how lenders see you, it’s how you handle the lending process, as well. If you’re applying for a lot of loans at once, or at a lot of places at once, it pops up as a red flag for lenders. They can see this when they check your credit report, and it might look, to them, like you’re liable to take on too much debt.
4. You have too much debt
Of course, lenders can see how much debt you have taken on as well and, if it’s more than they’re comfortable with, they can reject you on that basis alone. As such, if you want to deal with mortgage loan rejection, you should take the time to whittle down your debt. Most agree that the most productive way to do it is with the snowball method, getting rid of the biggest interest (and therefore most expensive) debts first.
5. You’ve taken out payday loans
Taking out a payday loan is, simply put, one of the worst things that you can do for the health of your finances. These high-interest short-term loans are often more difficult to pay back than borrowers realize, which puts them at risk of debt. However, other lenders also consider them to be such an irresponsible financial choice that even if you have paid them back, simply having a history of taking payday loans can be a red flag for them.
Of course, in some cases, it may be a simple error from the bank, rather than something actually wrong on your end. In most cases of mortgage loan rejection, however, it’s always better to look at your own situation and think about what you can do to fix it.