and it can occur for a variety of reasons.
The bank has to conduct a background check to ascertain whether you qualify for a mortgage loan. Sometimes, it’s very clear why a person is denied a loan. Other times, it is due to very small details that aren’t easily calculated or measured. Either way, banks have thorough vetting processes for a reason. They want to ensure that you are a credible person who can and will pay them back for the money they are lending you.
Here, we will discuss the top reasons that a bank won’t lend someone a mortgage loan.
1. Low Income
One of the major factors banks look at when determining whether you qualify for a mortgage loan is your income. This information will notify them of your ability to repay the mortgage loan. It won’t matter if you have the right deposit, if your income istoo low, the bank will be highly unlikely to lend you money. Having unstable sources of income is also another deal-breaker for most banks. The higher your ability to repay the loan, the easier it is for the bank to offer you one.
2. Bad Debt to Income Ratio
Banks are careful when lending money to people who have a high debt to income ratio. Aside from how much money you’re making, banks also want to know how much you spend on servicing your current debts. If a majority of your income goes towards repaying current debts, like credit card loans, the bank may rethink lending you money to buy a home. Different banks have different limits as to how high this ratio can get to be eligible for a mortgage loan.
3. Having Poor Credit History
If you have a poor debt repayment history with your previous lenders, the bank may reconsider giving you a mortgage loan. Banks are keen on your ability to repay their loan regularly and on time. There might also be missing documents from your credit record that will make it harder for the bank to accept your loan application. Ensure your credit record is up to date with the right documents to raise your chances of qualifying for a loan.
4. Frequent Credit Applications
If you have several recent credit applications for loans, banks may interpret this as having financial problems. This may eventually lead them to decline your loan application. Such applications leave a hard inquiry on your credit record. This shows lenders your borrowing history and could reduce your chances of qualifying for a mortgage loan.
Conclusion
Apart from the above-mentioned examples, there are also other reasons as to why a bank would refuse to give a mortgage loan. To understand why your mortgage application was rejected, you should first learn about how the mortgage lending process operates, and the part your credit score and record and your finances play.
Since mortgages are big loans, banks usually have a lengthy criterion to decide whether you qualify for the loan or not. Failure to meet any of their requirements will lead to the rejection of your mortgage loan application.
by: Alex Capozzolo
Alex Capozzolo is a partner of Better House Buyers, a home buyer based in Georgia. He has been writing for the real estate industry for several years. Alex enjoys writing on real estate investing and finance.