Applying for a mortgage can be a daunting process, particularly if you’re eager to buy your first home. With so much to think about during the home-buying process, the last thing you need is to have your mortgage application rejected.
To help you increase your chances of getting a lender to say ‘yes’, here are some of the most common reasons people are turned down for a mortgage.
You’ve got no credit history
Many people assume that completely avoiding credit cards and loans is the key to achieving a good credit score. After all, never needing to borrow money shows that you’re good at managing your finances, right? Unfortunately, in the eyes of lenders, this isn’t always the case.
Some people find themselves rejected by mortgage lenders for having little to no credit history. This happens when lenders are reluctant to approve your loan due to an inability to see how you manage debt. If a lender is unable to see examples of you borrowing money and repaying it back sensibly, they may deem you a risky borrower.
To avoid this problem, it can be wise to build up a credit history with the help of a credit card. It’s essential that you pay the balance off in full and on time to avoid making your credit rating worse.
You’ve had too many credit searches
When applying for a mortgage, the lender will carry out a credit search to determine whether you’re a responsible borrower and assess the level of risk you pose.
If they find that you’ve had a number of credit searches in a short space of time, they may reject your application.
You’re not on the electoral roll
If you’re not already on the electoral roll, be sure to sign up. Lenders will use it to check that you live at the address you give them.
People often have their mortgage application turned down as a result of not being on the electoral register.
You’re self employed
Self employment is a common obstacle to getting a mortgage. This is because your income is likely to be less stable than if you were in full time employment. As a result, lenders may worry that, should your income fall one month, you may struggle to keep up with your mortgage repayments.
This certainly doesn’t mean that you can’t get a mortgage when you’re self employed. There are a number of ways you can boost your chances from proving that you have regular paid work and by maintaining a good credit rating.
Most lenders will want to see a minimum of two years’ accounts before they’ll approve your application.
You have too much debt
When deciding whether or not to give you a mortgage, lenders will look at how much debt you have.
They’ll look at how much of your debt you can afford to pay off each month and how long it will take, while comparing this to the amount your mortgage will be. If your expenses will be high as a result of your debt, they may reject your application completely.
Generally, it’s best to pay off as much debt as possible before you submit your mortgage application.
Your deposit is too small for the loan you want to take out
Your deposit will have a big impact on the amount you can borrow. Generally, you’ll need at least a 10% deposit in order to secure a mortgage (though there are schemes available that could allow you to pay just 5%).
However, your income will also be taken into account. If you want to buy a £250,000 house and have a £25,000 deposit, but you earn £20,000 a year, it’s unlikely you’ll be able to get a mortgage big enough to cover the remainder of the property’s price. This is because, as a general rule, lenders rarely agree to mortgages of more than four to five times the homebuyer’s household income.
If you’re unsure about whether or not your mortgage application will be approved, seeking the advice of a mortgage broker can help. You’ll have an expert by your side every step of the way. They’ll take a close look at your financial circumstances before pointing you in the direction of the lenders most likely to approve your application and give you the loan you need.
Here at TaylorMade, we have extensive experience when it comes to helping people get a mortgage despite imperfect financial circumstances. If you’re self employed, have a small deposit, or you have debts, get in touch with our team today to figure out your options.
