Home » Why Mortgage Lenders Keep Turning You Down And What You Can Do To Turn Things Around

Why Mortgage Lenders Keep Turning You Down And What You Can Do To Turn Things Around

Everyone’s walked or driven past a property that just speaks to them. It’s like a snapshot taken directly from their imagination. In it, they see their dream home and the immeasurable opportunity to live, love, learn and laugh within its walls. Fervent house hunters search the market for weeks, months or even years chasing that feeling of having ‘arrived in their new home’. The sweetness of this moment is matched only by the heart-rending disappointment of having your mortgage application on that same property turned down.

blog

Image by Pixabay

It’s not uncommon to feel emotionally affected by this, not is it uncommon to take it personally. However, this unfortunate decision was made not out of a deep seated personal agenda against your happiness, but as a reaction to profound and global change in the financial services sector prior to the insolvency crisis of 2007-2008. While nobody likes to be turned down for anything, particularly a financial arrangement that could facilitate them walking into the home of their dreams, it’s important to understand why this decision was made. In so doing, one can hopefully learn and do what they can to change their circumstances so that the next application will be more favorable.

First off, since many of you will likely be bristling with anticipation to own your first home, let’s look at why renting may not necessarily be a bad thing...

First of all, your rent is not dead money

While the notion of getting a foot on the real estate ladder is a noble goal, and owning one’s own home is a worthy aspiration, some people are in way too much of a rush. A lot of people live in a state of frustration because they deem living in rented accommodation an unnecessarily expensive precursor to home ownership or (worse still) refuse to see a rented property as a home. Unfortunately the notion of rent as ‘dead money’ is a myth that baby boomer parents tell their millennial children that has pervaded in stark contrast to the economic reality of the 21st century.  

The fact is that any investment you make in keeping a roof over your head and ensuring that you and your family live in comfort is a worthy one, and should not be resented. Moreover, many people, desperate to escape what they see as the ‘rent trap’ propel themselves headlong into mortgages that are so high in interest they may as well be renting for all the equity they gain on their property.

blog2

Image credit

Why banks are getting choosier

There’s no denying that banks are getting increasingly prohibitive when it comes to mortgage lending, and while this is unmistakably an effort to rectify their own past mistakes, it’s not only understandable, it may work out to your advantage in the long run (more on that shortly). If you’ve seen The Big Short, you likely know how irresponsible mortgage lenders (particularly those in North America) were in the early noughties. Although the film is at best an oversimplification, it paints a fairly accurate picture of some of the irresponsible lending that was proliferate at the time. This was the age of 100% mortgages and subprime mortgages, lending hundreds of thousands of dollars of people without proven means to repay these enormous loans. When interest rates rose and housing prices fell, many lost their homes as they were unable to keep up with the newly inflated monthly payments. As frustrating and disheartening as it can be to miss out on the home of your dreams because you’ve been refused a mortgage, it’s infinitely preferable to the prospect of being granted a mortgage that you’re not equipped to pay and tying up your capital in a property on which the bank forecloses because you’re unable to keep up your payments..     

Why no mortgage is better than the wrong mortgage

While finding the right home is obviously important, few people are cognisant of the fact that finding the right mortgage is also critically important. Any bank or lender or broker worth their salt will not only do their best to find you a mortgage but to find the right mortgage for you and your circumstances. Check out the Altrua Financial website and you’ll see the kind of commitment that you should be looking for to customer service over bottom lines. You may want a mortgage that keeps your monthly payments more manageable yet spreads the debt over a longer time. Conversely, you may prefer to pay more in monthly payments in the hope of gaining more equity on the property. This is why it’s important to seek the advice of a financial advisor at the very least so your best to vet your chosen mortgage lender before committing to an application.

With that out of the way, let’s look at some common reasons you may keep getting turned down for a mortgage and how you can improve your chances on your next application…

You have no credit history

Here’s the thing, there’s a difference between having good credit and having no credit history. You may think that never having applied for a loan or credit card results in a superior credit score but this can, in fact, be to your detriment. Your credit score, after all, is determined by your ability to repay your debts, not to avoid debt altogether. Thus, many people who;ve managed to avoid needing a loan or a credit card all their lives find themselves shocked when they’re turned down for a mortgage as they have no credit history.

If this proves to be an impediment, you may wish to take on a credit card to make some modest purchases which you can repay without overspending on interest. Many credit card companies will try to lure you in with 0% interest over the space of a year or two. Be sure to box clever by paying off your credit card debt within this period and you’ll see your credit score soar.

blog3

Image by Picserver

You’ve made too many credit searches

Speaking of your credit score, a lot of people are unfortunately unaware of how negatively numerous credit searches can affect your score. If you’re going from broker to broker trying to find a mortgage, numerous checks in a short space of time will be a red flag to credit checkers.

You can mitigate this by doing as much homework as possible before you approach mortgage brokers or lenders.

You’re not managing your existing debts adequately

Simply getting by in the 21st century is an expensive prospect. With the private rental sector and cost of living (not to mention raising a child) getting increasingly pricey, it’s little wonder than many households find themselves overwhelmed by debt. While debt is nothing to be ashamed of (some might say inevitable), it’s effective management can make or break your mortgage application.

Managing multiple debts with varying schedules and rates of interest can be both complicated and stressful. Consolidating your debts into a single affordable payment can help immeasurably as your existing debts will be paid and transferred to a single smaller debt, which will positively affect your credit score.

You’re self employed

As admirable as it is that people are abandoning the daily grind in their droves to eke out a living for themselves on their own terms, it’s a sad truth that the mortgage deck is stacked heavily against the self-employed. As the income of self employed people tends to be less stable, banks are a little more jittery about lending to them.

You can, however, help yourself by making sure that your books are as well kept as possible and paint an accurate account of your income and profit. If your business is still nascent, it may be worth hanging fire until you’re more established and have the records to make you a more knowable commodity. For the self-employed, a squeaky clean credit rating is also essential.

The lender is skittish about the property

Risk aversion is a big part of a mortgage lender’s jobs, and some types of property make them disproportionately nervous. If, for example you have your sights set on an apartment above a store or near a commercial property of any kind, these can be anathema to some lenders. As they are statistically harder to resell than other, more conventional properties. This may be enough to put some lenders off altogether. However, if your first choice of lender takes this stance, the chances are good that you’ll be able to find another lender that doesn’t.

You’ve had financial troubles in the past

Unfortunately, bad credit can follow you around. If you’ve been made bankrupt, for example, it can take a long time for your credit rating to right itself. A bankruptcy has a lasting effect on your credit rating that takes an average of 7 years to clear.

Of course even those with checkered credit histories have been known to secure mortgages, provided that they can prove that they’ve been able to right the ship. Here’s where financial advice becomes doubly important. A good advisor will be able to keep your expectations realistic while helping you steer clear of ‘too good to be true’ products that will have a harmful effect on your finances in the long term.  

 

Related posts:

Leave a Reply

Your email address will not be published. Required fields are marked *


nine − = 7

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>