10 reasons why your mortgage loan may be rejected


Buying a home can be a very distressing experience for many people today. The criteria for getting a mortgage have become stricter. New rules are in place and many people fail to get their desired mortgage to buy home. According to statistics, millions of mortgage applications are rejected every year. So, before you apply for a mortgage, you need to learn about the whole procedure so that you can minimize your risk of getting rejected. Here are 7 circumstances in which your mortgage application might be rejected.

Switch jobs

You need to show proof of your employment for the past two years. Some lenders require that you must be on one job consistently for a period of two years at least. So, if you keep on switching jobs then your mortgage application may be rejected. Changing too many jobs indicate that you are unstable and might not be able to pay off your mortgage later on. However, if you have changed job to advance in your career or as a result of a promotion, then it won’t have any effect on your loan application. But if the change in job has affected your income negatively then there is less chance of your mortgage application being approved.

Get a new loan

Your credit history affects your mortgage application. If you get a new credit card after applying for a mortgage and before getting the approval, then there is high chance that it will take more time to review your application. Your application might be rejected as well. The same thing will happen even if you apply for a car loan while your mortgage application is being reviewed.

Close an unused credit card

It may surprise you knowing why closing an unused credit card will affect your mortgage application. The lenders look at your credit utilization ratio when giving you a mortgage. This ratio equals to the total amount of credit you have compared to the amount of credit you are using. So, if you close one credit account, your credit utilization ratio increases. As a result, your mortgage application may be rejected.

Change in mortgage requirements

Sometimes the requirements for obtaining a mortgage change.  For example, in the past, you needed to have a minimum credit score of 650, but now you need to have a score of 680. If you are not aware of these changes and apply for the mortgage then there is a chance that your application may be rejected.

Change in your credit report

Your credit report changes regularly. If you take an additional loan or fail to pay a month’s credit card bill, then your credit score will be affected. Missed payment or late payment of bills can lower your credit score and affect your mortgage application.

Buy a different kind of property

Lenders may be unwilling to give a mortgage for certain kinds of properties. These include investment properties and condos. To get a mortgage for this type of properties, you may need to give a larger down payment. So, before you apply for a mortgage for this type of property, you should ask your lender whether your condo is on their approved condo list.

Borrow the down payment

You should pay your own down payment, without borrowing money from elsewhere. If you buy the entire house on credit, you won’t feel back walking away without paying your loans as you don’t have anything to lose. But if you invest in your own house, then your money is on it. You will feel the urge to pay the mortgage on time so that you can be the owner of the property.

Borrow too little money

The minimum amount you need to borrow for a property is $50,000. Some lenders raise the minimum amount to $75,000 and even $1, 00,000. If you borrow less money then you will be paying less interest and the lenders will make less profit. If the lender sees that the risk of giving you mortgage is more than the profit they will earn, they might reject your mortgage application.

Loans went to collections

If your debts have ever gone to collections, it might hurt your credit score. So, you will have less chance of getting a mortgage approval. However, the information won’t be there on your credit report forever. You can talk to a credit repair firm and know what to do to improve your credit report.

Owe money for child support

If you owe money for child support or alimony, then it will be considered as debt. You should mention this in your application. The lenders will investigate your case and find out your financial status. You might need to have a higher credit score to be eligible for a mortgage if you owe money for child support. There is a chance that your mortgage application may not be approved.

You need to be honest about the information you provide on your application. You should provide your income information in detail, your credit score and other information so that the risk of rejection is low. If you have any red flags on your credit report, you should fix it before applying for the mortgage. You shouldn’t do anything to negatively impact your credit score when you apply for a mortgage, like getting a car loan or a new credit card. It is more difficult to get a mortgage today than it was before. The credit standards have been tightened. According to a statistics, only 55% of the mortgage applications are accepted today. So, you should prepare well before applying for a mortgage in order to decrease your chance of rejection.