Loan application rejections happen for various reasons, and lenders tend to stay away from borrowers who many lenders have rejected in the past. Knowing the causes can help you prepare for your turn in the future.
If you plan to get a mortgage loan soon but are afraid of getting rejected by financial institutions, educate yourself on why this usually happens.
Here are some of the most common reasons for rejection:
No Genuine Savings
Applicants with no genuine savings to put for the down payment and mortgage insurance are automatically a rejection case for most financial institutions. If other people contribute to your down payment and mortgage insurance, this is not a genuine saving.
Banks define genuine savings as "namely, the borrower(s) did not receive the money from another person in the form of cash or cash equivalent and the borrower(s) did not inherit the funds from an individual who did not have an ownership interest in the property being financed." You should have a regular flowing deposit into your savings for at least the past three months at the bare minimum.
If you have no genuine savings, you will need to show you have other income to make the down payment.
Bad Credit Score
A bad credit score is typically grounds for disqualification for most banks. If your credit score is below 550 and you plan on getting a mortgage loan soon, you may not have a good chance of being approved.
It is not impossible to get a mortgage loan with a bad credit score, but you will need to find a lender who is more flexible in their lending criteria. You will also have to have a bigger deposit.
Most lenders will not touch you if your credit score is below 500. You will need a co-borrower with a good credit score to co-sign on your mortgage loan. Also, you will have to have enough savings to make up for your deposit.
Not Enough Income
You must know how to communicate wages to financial institutions and prove that you are getting an income before applying for your mortgage loan. The general rule is if your employer is withholding taxes, you will have an income.
Not Enough Money for Deposit
If you do not have enough money to put as a deposit, it is not impossible to get a mortgage loan, but you need to find a lender who is flexible with their lending criteria and will make negotiations to get a loan.
Finding a lender who will work with you is not impossible either. You can get pre-approved for a mortgage loan if you want to know more about your options.
If you don't have enough money for a deposit, you can still apply for a mortgage loan to show how you can get the cash for the deposit.
Unstable Employment History
If you have been employed with the same employer for less than six months and plan on getting a mortgage loan soon, you might be a rejection case. Many lenders require an employment history of at least one year with the same employer.
Lenders tend to stay away from applicants with unstable employment histories because they are very risky to lend.
You can expect to be rejected if you have a history of job-hopping. It is especially true if you have only been employed with the same employer for three months or less.
Many lenders view job-hopping as a sign that borrowers may not be able to find a job in the future because of their unstable work history and questionable work ethic.
Knowing why you are being rejected from your mortgage loan application can help you prepare for the future. It is essential to understand that rejection does not mean you will never be able to own a home. There are always lenders who are more flexible in their lending criteria and can assist you when you need it the most.
If you want to know more about your options, you can get pre-approved for a mortgage loan and find qualified financial advisors. Wealthy You is where you'll find the best home loans in Sydney. We are an Australian Mortgage Company offering various mortgage solutions to fit your needs. We have been servicing Sydney for almost a decade now. Talk to us so we can help you.