Mortgage applications can get rejected for a lot of reasons. How you prepare before your mortgage application will go a long way to avoid any rejections.
Preparing for a mortgage application
Before you find a mortgage broker there are a few things which you must ensure you do to ensure you are even eligible for a mortgage . These will determine what you should do next. In some cases you simply need to improve your mortgage affordability . This could be through the use of first-time home buyer schemes or budgeting tools to help you save more.
Check your credit score:
Checking your credit score is hands down the easiest thing you should do before you apply for a mortgage or seek out a mortgage broker. If your credit score is low then you might not be eligible for a mortgage. If your credit score has negative marks such as county court judgements then you will find it even harder to get a mortgage.
Checking your credit score will let you know if you need to build credit first or if you can head straight to a mortgage broker.
Check your mortgage affordability
Checking your mortgage affordability is relatively simple.
You simply need to look at your average disposable income per month. This is the money left after all expenses. Then use a mortgage affordability calculator to see what your likely monthly mortgage payments are. You should niw know if you would be able to afford the mortgage repayments comfortably.
Mortgage lenders will like to see you left with at least 30% of your disposable income after mortgage repayments are made so just crossing the line won't do.
If you have done this preparation but your mortgage application still gets declined then don't get into the trap of reapplying without finding out the reasons why your first mortgage application was declined.
Every credit application you make is seen on your credit file and whenever you get declined this pushes your credit score lower.
Why your mortgage application got declined
If your credit file doesn't indicate that you are on the electoral roll, you might find that a lot of credit applications are declined. This is because lenders use the electoral roll to determine your proof of address. You can simply register to vote to get on the electoral roll.You can do this online.
Well,You can ask the credit bureaus experian, equifax and callcredit to add a note on your account to say that your address has been validated.
No credit history
If you don't have any credit history then it is very unlikely that you will be accepted for a mortgage application as the lender will have no way of seeing what your credit behaviour is or what your credit repayment behaviour is like. You should look to build credit before you make a mortgage application.
If you have lived in the UK for less than 3 years then it is very likely you will not have a credit score or history.
Too many credit rejections
Whenever you get rejected for credit this is reported on your credit file and pushes your credit score down. You should only apply for credit when you are sure you are going to get it if not you risk being declined and affecting your credit score.
Too many credit applications
As with rejections, too many credit applications within a short time will negatively impact your credit score.
You should avoid making any credit applications when you are 3 months away from applying for a mortgage. When you apply for too many credit applications within a short period of time, it gives lenders the impression you are desperate for credit.
Too many existing credit obligations
If you already have existing credit obligations then lenders might deem you risky as you have too many different repayments to make. You should try clearing your your existing credit obligations in full before applying for a mortgage.
Just as with too many credit obligations, mortgage lenders do not like seeing borrowers who have payday loans. This indicates to the lender that you are in financial difficulty or you were once in financial difficulty and took out credit that was not optimal for your financial wellbeing. A bit harsh but this is the view of mortgage lenders, You should avoid payday loans like the plague. Any payday loans you have had on your credit file within the last 6 years will count against you. You should look for mortgage lenders who don't look so harshly to payday loans.
Your income is too low
If you don't earn enough then it is unlikely you will be able to get a mortgage.
Lenders use a multiple as the first basis to determine if you can afford the mortgage. The multiple currently being used is 4.3. So you mortgage will have to be no more than 4.3 of your income. You should use a mortgage calculator to see if you will be eligible for a mortgage and what monthly repayments you are likely to pay.
You can also use a government scheme calculator to see what government schemes you may be eligible for as this will help reduce how much mortgage deposit you need to put down or offer you a discount on the property.
Your mortgage deposit is low
If you mortgage deposit is below 15% then there is a high chance you will not be accepted for a mortgage.You should check with your mortgage broker or lender to ensure the mortgage you have suits their needs
You don't meet mortgage lenders criteria
Quite simply, If you don't meet a mortgage lenders requirement then it is quite likely that your mortgage application will get rejected. To reduce the chances of you getting rejected you should use a good digital mortgage broker with experience of the market.
You are self employed
If you are self employed then getting a mortgage is going to be harder. You will need to prove to the lender that you earn a stable income and your future income is somewhat guaranteed.
The mortgage lender makes an admin error
Mortgage lenders sometimes make mistakes. Your digital mortgage broker will have to do most of the work for you and should ensure any information the lender is making their decision on is accurate and will be able to get feedback on why the mortgage lender made any decisions. This will allow them to challenge the decision and find possible mistakes. The most common mistakes are misspelling of names or not finding a credit file or even using the wrong credit file.