Are you applying for a new mortgage or a mortgage refinance? It is a very sorry situation if you have applied for a mortgage or mortgage refinance expecting to soon move into a new house and then you find out that the financial institution has rejected your mortgage or refinance application. All your hopes of getting into the new nest are squashed then and there. This need not be your experience if you learn how mortgage issuers work and play along their instructions and guidance. So, what are these ways?
Below are the five most popular reasons why mortgage applications get rejected – some of them even at the final stage when you are all gung-ho about moving into the new house. By avoiding these five traps, you stand to have a better likelihood of actually having your application for mortgage approved.
1. Low Credit Rating
Do you know the first thing a mortgage lender will do when you ask them for a loan? When you first submit a loan application, a lender will check your credit rating. Your credit report is easily available to lenders on request if you have submitted an application to them. They can even get your credit rating from all the three crediting bureaus. If you’re already experienced a bankruptcy, your application for a mortgage might already be a longshot. Even the occasional late payments might factor into their consideration. Everything is checked – car loans, personal loans, credit card loans, etc. In fact, a lending instruction will go as far as evaluating how you paid back your student loans as they evaluate whether or not to approve your mortgage.
2. A High Priced Property
A seller might consider their property valued at a premium. This could be because of several factors like location, amenities, condition of house, etc. But the lenders might find such high prices quite unrealistic to finance for. If there’s a property whose worth is just about 100,000 in the market, but someone is wishing to sell it for 500,000, then no seller would want to come forward to finance it. This is one more reason why mortgage applications fail.
3. Appraisal Value of Property is Low
This ties in with the above point, actually, but it is different. When you make a mortgage application, the lenders will send their experts to the venue to check out the property and to assess its market value. This step is called as appraisal. Many times, the mortgage application is rejected at appraisal because the value of the property is assessed to be lower than what is applied for.
4. Insufficient Funds in Bank Account
You are not going to get all the funding for the property from the mortgage. You will get approximately 75 – 95% of the property cost and need to make up the difference from your own assets. Plus there are the fees due at closing to consider. The lenders will dig into your bank account for these fees. If you do not have the right funds ready for them, they will reject. Yes, many lenders just reject without justifying the reason, when the actual reason might be that they have looked into your bank account and made the impression that you would not be able to pay the remaining charges and property value.
5. Too Much Debt
Struggling under a lot of debt is never helpful and especially not good for your mortgage application. Too many loans from too many other lenders, and another lender is not likely to want to burden you with another. Your level of debt can easily be see on your credit report.
