4 Reasons Your Mortgage Application Could Be Declined

There are many reasons that mortgages don’t get approved including low income, too much debt, and bad credit. Here are some ideas of what you can do if you’re getting declined due to any of the following reasons.

Low Income: If the bank tells you that you can’t afford a mortgage amount because of your income, it’s for good reason; you won’t be able to afford the payments. To overcome this, try the following:

  • Lower your mortgage expectations by shopping for a cheaper home.
  • Start making more money.
  • Put more money down. A bigger down payment means a smaller mortgage. The bank might also consider this a greater commitment and be more lenient on your income limitations.
  • Get someone to co-sign the loan with you. If you know someone who’s willing to back your loan, you can have him or her sign with you on the mortgage as assurance to the bank that at least someone can make the payments.

Too Much Debt: Multiple credit cards, a line of credit, vehicle loan, and other consumer debt will contribute to the bank’s decision to decline a mortgage loan. A large chunk of what the bank believes you can afford is based on how much you currently owe.

If you’ve got too much debt, you’ll need to reduce it as quickly as you can. It may help to consolidate your debt at a lower interest rate and focus on paying more every month. The faster you get rid of your consumer debt, the more available income you’ll have to allocate toward a home.

Too Much Available Credit: Having too much available credit can also hurt you. For instance, if one person has a MasterCard with a credit limit of $5,000 versus someone with three credit cards with credit limits totalling $15,000, the person with the MasterCard is considered lower risk. This is because the person with the $15,000 limit has the potential to utilize all that credit. They are therefore considered a higher risk mortgage candidate whereas the person with the potential to spend $5,000 is less risky.

Consider doing the following if you’ve got too much available credit:

  • Cancel unused credit cards and lines of credit (keep the ones with the best and longest credit history). If you have more than one credit card or line of credit, consolidate your balances, and ask the lender to reduce the credit limit. Caution! Don’t cancel everything all at once. Space it out.

Bad Credit: Here’s what you can do to clean up your credit. Be responsible and wait it out. Nothing speaks louder than your actions. Make your payments on time, don’t miss payments and don’t ignore your debts. If you’re struggling with keeping up, see a credit counsellor who can help you negotiate new terms with your lenders.