Here’s why your mortgage application was not approved

Was your mortgage application not approved? This can be a terrible feeling, especially after putting in all the time and effort to find the perfect property. At some point, you will likely wonder why this happened. The truth is that even if you were pre-qualified, you can still lose your application if a significant part of your financial situation changes. Here are some of the most common reasons your mortgage may not have been approved, and what your next steps look like.

Human error

Before we get into the more complex reasons a mortgage application may be declined, we have to start with the simplest possibility, and that is human error. Completing a mortgage application is a big process and it involves lots of forms and documentation. It’s not too difficult to make a mistake filling out this information, or to accidentally skip part of a necessary form. Our minds are usually very busy during the home buying process, after all! However, even a small error can result in your application being declined. Timelines are tight in the housing market, and lenders may not be willing to give you time to correct your mistakes. That is why it’s essential to triple check your application before submitting it. This can be one of the most frustrating reasons behind a mortgage application not being approved, simply because of how preventable it is. If you find this is the case, you won’t need to look further into the matter and other possible reasons for the decline.

Debt levels

Assuming your mortgage application issues were not related to human error, debt levels are another common culprit. As you know, a mortgage means taking on a large amount of debt. Your lender needs to know you can support this debt, and part of that involves examining your other debts. The more debt you hold, the less financial breathing room you have for mortgage payments. If your lender feels like financing a mortgage is too risky with your debt levels, they can reject your application. Debt doesn’t automatically rule a person out from buying a home, but they must be able to prove they can manage a mortgage on top of it. Try to keep your debt levels as low as possible, and avoid taking on new debts during the purchasing process. 

Employment or income changes

In order to make mortgage payments, you need to have money. Of course, employment directly ties into this, which means lenders are interested in it. If your mortgage application was declined, think about whether your income or employment have recently changed. If you are bringing in less money than before, this heightens the perceived risk of financing your mortgage. Even if you begin a new job with a higher pay, lenders may feel uneasy if you are still in a probationary period. Any change to your job or income levels can raise a red flag for your lender and cause them to reject your application. If possible, it’s best to maintain your employment until you complete the home purchase. This provides reassurance and stability for your lender.

Credit score changes

Lenders will examine your credit score when they review your application. Your credit score is an indicator of your creditworthiness and ability to repay debts. It takes into account your payment history, whether you have made your payments on time, and if you can meet the minimum payment requirements. Higher scores indicate a person is reliable and is likely able to handle a mortgage. If your credit score drops after you’ve been pre-qualified, your lender might deny your application. This sends a signal that you are a potentially risky borrower, and many lenders will hesitate to approve your mortgage. A credit score decrease can indicate trouble making payments on time or meeting the minimum amount. Try to maintain your credit score, or improve it, during the application process.

What happens now?

What happens if your mortgage application is declined? The most important step is to determine why this happened. That way, you can improve your situation if needed. For example, if a change in your debt levels triggered this response, work on paying off your debts. Once you have a better handle on them, you can reapply for a mortgage. You can also speak to your lender to see if you can have the chance to correct the error if it comes down to human mistakes. You might also be able to look into alternative or private mortgage lenders, who are more flexible with their approvals in exchange for higher interest rates. Before you do anything, however, you should speak with your mortgage broker about your situation. We can help you determine what went wrong, and how you can fix it moving forward.

When your application is declined, it’s important to get to the root of it right away. That determines your next steps and how you can move forward. Whether the decline stems from human error, debt levels, employment changes, or credit score issues, identifying the cause is the first step toward a successful reapplication. Working closely with your mortgage broker can help you through the process so you feel better prepared for your next attempt! Soon, you'll be in a stronger position to secure the mortgage you need to achieve your homeownership goals.

If you have any questions about your mortgage, get in touch with me!