Why was your mortgage not approved?

Have you recently applied for a mortgage, and your lender didn’t approve it? This can be a stressful and disheartening experience, but it is also not an uncommon one. Why was your mortgage not approved? There are several reasons why a lender may reject your application, with some being more complex than others. However, it doesn’t always mean you have to walk away from the home purchase. Here are some common reasons why your mortgage may not have been approved, and what your next steps should be in these situations.

Inconsistent employment or income

Your employment and income both play a large role in your mortgage application and approval. Lenders generally want to see at least two years of consistent and stable income. This provides assurance that you have a steady job that is providing you with the funds needed to make your mortgage payments. If you have recently changed jobs or are between jobs, lenders may be more hesitant to approve your mortgage. Similarly, self-employed individuals might also find it challenging to get approved for a traditional mortgage. This is where private mortgages come into play for these individuals.

Along with your employment is your income itself. Lenders want to make sure you have enough money to make your monthly payments. If they think your income is too low or inconsistent, they may be hesitant to approve your mortgage. 

Credit history issues

Your credit plays a huge role in your mortgage approval. Credit scores indicate how reliable a borrower may be in terms of making mortgage payments. The higher your score, the more “creditworthy” you will seem to lenders. This means you are more likely to secure better products and rates. 

It is generally recommended to strive for a credit score of 660 or above. If your score is below this threshold, it can have a negative impact on your mortgage approval, or cause a lender to reject your application. Lower scores can indicate previous issues with making payments or taking on too much debt. For a conventional lender, this may be too risky. Individuals with lower credit scores often have to use an alternative lender, or take the time to improve their score before applying for a mortgage. Take a look at your credit score and see if this could be a factor in your specific position. 

Errors or missing documentation

This is maybe the most frustrating reason for having your mortgage application declined. As humans, we all make mistakes. It can be easy to forget to sign a form, or include a necessary document. This is especially true when working with a mortgage, which involves a lot of paperwork. However, if everything is not in order when your application reaches your lender, they may not approve it. 

The good news here is these mistakes are simpler to correct down the line, as they do not show an issue with your actual creditworthiness. However, it’s still frustrating to run into this issue at all. That’s why it’s essential to double and triple check your documents before sending them in. Working closely with your real estate agent and mortgage broker will also give you an extra layer of reassurance that everything is in order. 

Property appraisal problems

Before a lender will approve your mortgage, they will require a property appraisal. This reflects the actual value of the home you are buying, which is not always the same as the purchase price. 

If a home appraisal reveals your new property is not worth as much as your mortgage, your lender will likely not approve it. Lenders do not want to provide financing beyond what something is worth. This leaves you with a couple options as the buyer. If your lender is willing to approve a smaller mortgage, you can make up the difference yourself. In fact, this is what you would have to do if you did not include a condition in your offer stating the home must first pass an appraisal. If you are not stuck and have the option to walk away, this is also something to consider. Having to pay for the difference between your offer and your mortgage can be difficult, and sometimes it is best to wipe the slate clean. In any case, a low appraisal value can definitely impact the approval of your future mortgage. 

Having a mortgage application rejected is not an ideal experience, but it doesn’t mean there’s no way forward! Once you ask yourself why your mortgage wasn’t approved, you can start taking steps to eliminate the cause behind it. Your first step should be to reach out to a mortgage broker to discuss how you can boost your application in the ways that count! We are here to help you find the right solution so you can buy your new home with the product and rate you deserve. 

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.