Top Five Reasons Your Mortgage will be Rejected - Broke in London

Top Five Reasons Your Mortgage will be Rejected

Having your mortgage application denied can be a frustrating experience

Guest post by Ryan Beitler

If you are thinking about applying for mortgage, it is key to understand why most people get rejected. With this knowledge you can avoid the pitfalls and get approved for the mortgage you need to live in your dream house.

Not only is getting denied from a mortgage stressful, it can negatively impact your credit score and make it less likely that banks or other mortgage providers will approve your request in the future. By understanding rejections and doing it right the first time, you can avoid all of this. Below are the top reasons that your application for a mortgage may be denied.

Bad Credit

The first and most obvious reason people are rejected from a mortgage is because their credit is bad. Your ability to pay pack debt reflects how you will be able to essentially pay the money back. Quite simply, if your credit rating is poor, mortgage lenders will not want to trust you. Your credit score may be bad if you have defaulted on debt payments in the past, made many recent credit applications, or are using a high percentage of your available credit. One way to use a high percentage is to utilize all of your overdraft every month.

Having no credit is basically the same as having bad credit, mortgage lenders have no evidence that you’re going to pay off your debts to them. According to the site MoneyPug, which is used in the UK as a mortgage calculator, while it is still possible to get a mortgage with bad credit, you will usually need a large deposit or a guarantor. It is better to fix your credit by paying off your debts before applying for a mortgage.

Taking out a Payday Loan

As if payday loans weren’t annoying enough, they are listed on your credit file for six years even if you pay them off in time. Lenders typically see a payday loan as evidence that you struggle to manage money. Not all mortgage lenders will turn you down because of a payday loan, but it has definitely happened before. It is best to make sure the payday loan is paid off before you apply for a mortgage. You can also talk to a broker or independent financial adviser to see which lenders will approve your mortgage.

You’re Not Registered on the Electoral Roll

It’s not that mortgage lenders care if you vote or not, they use the electoral roll as a way to prove you are who you say you are. Though not directly related to voting, if you are registered to vote you will have a better chance of getting a mortgage. Curiously enough, it also improves your credit score. Even if you don’t plan on voting, registering can be a good way to get ahead.

You Don’t Earn Very Much

Mortgage lenders will definitely look at your employment to see how much money you make. This can be one of the most important factors affecting whether or not you are approve for the loan. Still, if you don’t make that much money there are things you can do. Applying for a smaller mortgage is the easiest way to improve your chances of acceptance. Another common way of increasing the amount a lenders says you afford is to take the mortgage out over a longer period of time.

You’re Self-Employed

Similarly to not earning a lot, being self-employed can hurt your chances of getting approved for a mortgage. Even if you may good money, lenders will worry how your income will fluctuate month to month. The best way to get around this is to do your best to show lenders that you are going to make the monthly payments. It helps to show that you’ve been in business for more than three years and apply armed with tax statements that show you have a steady income. Providing proof of future work you have secured will show lenders that you will have steady work and that your salary won’t fluctuate too much.

Now is as good a time as any to mortgage a property. Interest rates are going down, giving you a better deal on repayments. If you use this good timing and show due diligence when it comes to your shortcomings, you will be a lot more likely to be approved for a mortgage.