Having a ballpark figure for how much you can afford to borrow makes it possible to narrow down your choices and find a house that fits within your budget. The best place to start is a loan pre-approval, in which the lender will give you a rough estimate of how much you can borrow for a property purchase.
While that effectively simplifies things, a pre-approval does not guarantee a finalised mortgage. If you've got pre-approved for a mortgage only to end up getting declined after, here are some possible reasons why that happened:
1. You've Incurred Additional Debt
Anytime you take on credit-card debt, a personal loan, or open up a new line of credit, your loan-to-income ratio goes up. This could increase your debt-to-income ratio too much and make you ineligible for a mortgage.
At the very least, you'll need to call your lender and ask for an increase in the amount of your mortgage, which could take some time to process. The lender may also charge you a fee. You may also have to sign an updated promissory note that records the amount you can now borrow with the new information, and you may have to pay an additional appraisal fee.
2. You've Had a Job Change
The sudden loss or reduction of your income can be a big strike against mortgage qualification. Most lenders look at your ability to make your mortgage payments after some time, and a job loss could mean that you can't cover your debt obligations. Your lender will ask you for details about your monthly income and debt obligations, including any recent changes.
3. Your Financial Circumstances Changed
Your lender will ask you to provide documentation of your assets, income, and expenses to qualify for the mortgage. If you recently bought a new car, moved into a larger place, or updated your furniture, that's cause for concern. Your lender will likely ask you for details about your assets, income, and expenses to ensure that the amount you want to borrow isn't more than you can handle.
4. Your Income Isn't Consistent
Many lenders look at your income over the past two years. Even a tiny difference in your earnings over the last 12 months, or a recent change in your employment, can make you unable to get a mortgage. If you've recently started working, moved to a new job, or aren't getting consistent pay, your lender may ask you to provide more information about your income.
5. There Are Changes in the Lending Criteria
Lenders adjust their lending criteria periodically, so it's a good idea to double-check the details of your pre-approval. Changes to the rules may have changed the minimum downpayment you need, the maximum loan-to-value ratio, the amount you can borrow, or the interest rate you qualify for. If you've been pre-approved for a mortgage, it's essential to make sure that you're still eligible to take on the loan as it stands now.
A mortgage pre-approval is not a guarantee of getting your loan approved. Instead, it gives you a good idea of how much you can borrow. Before you put an offer on an actual house, make sure that you've got everything in order so that you don't end up getting declined after a mortgage pre-approval.
Wealthy You is an Australian Mortgage Company servicing Sydney for almost a decade, offering a variety of mortgage solutions to meet the specific financial needs of every client. As an alternative lending specialist, we can make refinancing your home simple. If you want to gain access to the best home loans in Sydney, get in touch with us! We look forward to meeting you.