If your application is turned down, you might think there’s no way you’re going to get a mortgage. However, it’s vital to stay calm and carefully work through your options. Here are five things you can do to maximise your chances of getting a mortgage after an initial rejection.
If you’ve already received a comprehensive assessment from your loan officer, in most cases it shouldn’t be a big surprise when your loan application is turned down. However, sometimes assessments don’t end up reflecting the final decision, as the mortgage application process is extremely in-depth.
When you’re rejected, the lender should give you a clear explanation of the reason so that you can requalify at a later stage. If there’s any ambiguity, ask the lender for further details.
Your credit score is one of the major deciding factors when it comes to applying for a loan. Consequently, you should take a close look at it and check it for mistakes. And if you simply don’t have a good credit score, you might still qualify with a different mortgage lender.
In the current financial context, many lenders understand that prospective homeowners will have an imperfect credit score. To find the right lender for your particular credit rating, approach someone who works directly with a lender (rather than your bank).
If you have a pretty solid credit rating, outstanding debt is one of the most likely reasons why you might be rejected for a mortgage.
Any more you owe, whether it’s for credit cards, student loans or something else, is taken into account. Crucially, the lender works out your DTI (debt-to-income ratio) by comparing the money you owe to the money you make. For example, they’re looking to see whether you’re living pay cheque to pay cheque, with most of your income spent on bills. Ideally, you should aim for a DTI below 43%. To get there, look into debts you can pay off - starting with any credit cards. Or perhaps, you might just need to sell a house to pay off debts.
These days, it’s very common for prospective buyers to be struggling with debts incurred through college and university. If this describes you, it’s still possible to buy property - you just have to go for an income-based repayment agreement. This means you pay less per month, at least to begin. And if you’re in the medical profession, some lenders will give you a specific loan that reflects the combination of your high debt and high income.
Finally, try not to be disheartened if your first attempt to secure mortgage finance doesn’t work out. Compare it to shopping for clothes, for example - if you need a new coat, you don’t just go home empty-handed if the first coat you try doesn’t fit you.
In reality, most people who struggle to get a mortgage the first time simply have credit issues - not a bad history repaying previous loans. There are loans out there for just about everyone, provided you take the time to do the research.
So, if the standard 30-year loan doesn’t fit your circumstances, find something else that will. Even better, make sure you apply to two or three lenders at the same time so that you maximize your chances of being accepted by one.