Will my mortgage application be approved or rejected?
For homebuyers, it is this one question that is much more nerve-wracking than any other hectic work involved in a home buying process. And not every time, the answer is in your favor! Want to know the factors that decline your home mortgage application? Read on!
No doubt, being declined for a mortgage loan is a huge disappointment. Consider all the hard work and hassle that you go through right from the moment you apply for the loan. A mortgage application acts like a bridge that can take you to your dream house and fulfill your dream of living in it.
However, to make this dream come true, you must look out for the following factors. All of them can easily make a lender deny your loan application. Thus you must take care of them before you apply for a mortgage loan.
Why Would a Lender Deny Your Mortgage Application?
A new personal loan or credit card
If you have recently taken a new debt before the start of your mortgage application process, it is a big no-no. The experts suggest that you must avoid taking a new loan if you are planning to buy a house and need a mortgage for that.
This may include every kind of debt like a personal loan, a new credit card or short-term loan that you may get to buy a new car or to finance new furniture for your new house. That’s because when lenders decide to approve your mortgage, they factor in all the new debts to calculate your debt-to-income ratio. This means that your new loan can significantly reduce your chances of mortgage approval.
You accept monetary gifts
As soon as your lender starts reviewing your mortgage application, the out-of-place deposits is one of the factor they look out for. So if during the approval process you have collected any monetary gifts, this may affect your lender’s decision. Experts advise to stop receiving any kind of monetary gifts at least 2 months before you apply.
This may include annual bonus or a simple gift from any of the friend. All of this can raise some red flags for your lender. So if you are relying on your friend or family to purchase the house and receive an amount for the down payment, it must be acceptable by your lender. Indeed the definition of acceptable amount highly depends on your loan type and laws governing the loan process.
You missed a debt payment
Any negative activity on the credit report, during the loan process, may raise concerns for your lender. Any activity that is reported in last two years is the real danger zone as lenders pay very close attention to this time period.
That is why, if you have recently missed a debt payment or any other activity that is still appearing on your credit report, it may affect your mortgage approval. Thus make sure your credit report is accurate and no items are appearing that must have fallen off the report.