Your credit score is not the only factor that lenders consider when evaluating your mortgage application. Lenders also look at the number of years you’ve been with your current employer, your income and asset stability, among others.
In this guide, we find out What Percentage Of Mortgage Applications Are Declined, what stops you getting a mortgage, mortgage application declined what next, and how soon can you apply for a mortgage after being declined.
Before you get discouraged and give up, understand that there are many reasons why you could be turned down for a mortgage. From the size of your deposit to your debt-to-income ratio to the length of time you’ve been working at your current job, there are so many variables that contribute to whether or not you qualify for a mortgage.
What Percentage Of Mortgage Applications Are Declined
Mortgages are a necessary part of buying a home, but they can also be confusing if you don’t know what to expect. As you start shopping around for the right mortgage, it’s important to understand the different types of mortgages available and how much you can afford. While your credit score is one of many factors lenders consider when reviewing your application, it’s by no means the only one. In fact, according to data from Mortgagee Canada there are several reasons why you might get turned down for a mortgage:
As of February 2019, 24.6% of mortgage applications are declined.
The number of mortgage applications declined has gone up since the beginning of this year, as well as compared to last year and over the last decade. As of February 2019, 24.6% of mortgage applications are declined.
What is the reason for mortgage applications to be declined?
You’ll know soon enough if your mortgage application is declined.
In most cases, a mortgage application will be declined for a number of reasons. These include:
- Low credit score
- Financial instability (e.g., large debts)
- Lack of documents/information requested by the lender on their checklist of documentation requirements (e.g., proof of employment and income)
The top reasons why a mortgage application gets declined
When you apply for a mortgage, some of the most important pieces of information you’ll need to provide are employment verification and documents. If these things aren’t provided in a timely manner or with the correct details on them, your application may get declined.
The next most common reason why mortgage applications get declined is financial instability. If the bank has doubts that you can keep up with your payments (which can happen if there have been multiple changes to your income), they won’t approve the loan and will deny it outright.
Low credit scores are also often cited as one of the main reasons why people’s mortgage applications aren’t approved by their banks or lenders. This doesn’t mean that everyone who has low credit scores will be declined; it just means they’ll face higher interest rates than someone without bad credit would receive.
Section: Low Credit Score
- What is a Credit Score?
Your credit score is a number that represents your creditworthiness. It’s based on your credit report, which is a record of your financial history. A lender uses this report to determine if you are eligible for a loan and what interest rate you may be charged for that loan. The better your score, the more likely it is that you will get approved for the best rates and terms from lenders.
The three main credit reporting agencies in Canada are Equifax Canada (formerly TransUnion), Experian Canada and TransUnion Canada — together known as CIPC – which together cover almost all Canadians since they’re required by law to provide proof of identity when applying for most services such as utilities and cellphones. The Dispute Resolution System (DRS) plays an important role in helping people resolve disputes with these agencies over information contained within their files.
Section: Financial Instability
Financial instability is a situation where you have a lot of debt and not enough income to cover it. You may have too much debt, or you may be spending more than you earn.
You should consider other factors as well, such as how long it will take for your application to be processed. If this is an urgent matter and you need the funds right away, then apply for an unsecured loan instead of using your property as collateral against the mortgage loan application.
Section: Lack Of Documents
A mortgage application is a lot like a job application. You need to have the right documents to apply for one, much like you need certain qualifications and experience to get the job of your dreams. And the same goes for getting approved for a mortgage—you’ll need good references and proof that you can afford it.
When you were looking for an apartment, did anyone ever tell you that they couldn’t approve your application because they didn’t have your reference letter? That’s because landlords generally want proof from previous landlords that their tenants were clean and tidy, paid their rent on time—and didn’t cause any damage while they lived there. Similarly, when applying for a home loan or line of credit with a financial institution such as TD Canada Trust or CIBC Bank (Canadian Imperial Bank of Commerce), lenders will ask similar questions about whether someone has had any problems paying off previous debts before agreeing to lend them money again—especially if it’s going toward something expensive like buying property!
Section: Lack Of Employment Verification
Before you start applying for a mortgage, it’s important to make sure your employment is verified. This is a requirement that most lenders require on a mortgage application.
You can have your employer complete the form and submit it. You can also do this yourself by following these steps:
Open an account with LinkedIn (if you don’t already have one) or Google Account Sync (for Gmail users). If you are using LinkedIn, connect your social media accounts so they appear in one place on the site.
Log in to your email account and click “New Message.” Enter the name of the person who works at the company where you are employed as well as their email address in this format: “first name last name”@company domain name.” For example: John Smith@examplecompanyname.com
Note: If this person does not use their first initial followed by their last name (e-mail), enter only their username in brackets after their full name; such as [Jane Doe].
There are a number of reasons that can lead to a decline in your mortgage application, from low credit score to not having enough documents with you
The first thing that plays a role in your mortgage application is your credit score. This is an important number because it indicates how likely you are to pay back the debt that you have taken on, and lenders are looking for people who will be able to repay their loans.
The second thing that plays a role in your mortgage application is financial instability. If you have had late payments on bills or have been evicted from previous residences, then this could lead to declining your loan application.
The third thing that plays a role in your mortgage application is lack of documentation from employers proving income stability and employment verification from previous landlords or property owners (if renting).
what stops you getting a mortgage
A mortgage application takes a lot of time and energy, so having it turned down can be frustrating.
Whether you’re about to apply for a mortgage or want to find out why you haven’t been accepted, here’s a list of things that might stand in your way. Maybe you’ll be able to avoid some common mistakes and give your application the best chance of success. Let’s go.
1. Money: proving you can afford the mortgage
If you’ve had “mortgage declined on affordability,” it means your potential lender decided that there is a risk that you wouldn’t be able to make your mortgage repayments. This can happen even if you have a mortgage in principle (because an MIP doesn’t involve a credit check).
Your mortgage can be declined on affordability for different reasons:
You fail the affordability checks
Lenders make affordability checks to make sure you’re going to be able to make your mortgage repayments. They’re interested in how much of your income the mortgage will take up, and whether you could continue to make your repayments if your situation changed.
You have too much debt
A mortgage is a big debt and lenders want to know they aren’t adding to an already existing pile. Lenders don’t just consider your current debt but also your potential future debt. If you have a lot of credit cards with a high spending limit, you should consider closing them before you make your mortgage application.
You don’t have a large enough deposit
The size of the deposit you’ll have to pay depends on the property, your circumstances, and your credit history. You might be able to find a 5% mortgage, but at least a 10% mortgage is more common.
2. Credit: proving you can make repayments reliably
Mortgage lenders are very interested in your credit score. It’s a number based on your borrowing and repayment habits. The higher your score, the more likely you’ll be accepted for a wider variety of mortgages. You can read more about improving your credit score here.
Poor credit score
If you have a poor or very poor credit score, you’ll find it harder to get a mortgage, especially without going through a mortgage broker like Habito. This is especially true if you have CCJs (county court judgements), IVAs (individual voluntary agreements) or bankruptcies against your name.
Too many applications for credit
Applying for a lot of credit from different places tells lenders that you might struggle to make your mortgage payments. Especially if you’ve tried to borrow a lot in the months before you make your mortgage application.
Mistakes on your credit report
Mistakes happen, and it might be that someone else’s debt is attached to your name or that your credit report says that you failed to pay a bill you paid on time. You can call your providers to correct these errors and update your report.
No credit history
You might think it’s great to show your lender that you have no debts, but having no credit history can be as bad as having a poor one. For some people it might be a good idea to take out a credit card, borrow each month and repay in full so that you can start building up a good history.
3. Employment: proving you have a stable income
Your lender wants to learn more about your job before they let you borrow, and there are plenty of ways that your employment situation can block your application from being accepted.
You can’t prove your income
This one is a headache for self-employed people and contract workers in particular. If you work in conventional employment, mortgage lenders might only need to see 3 months of bank statements or payslips to prove your income. However, if you’re self-employed, you might need to show financial statements covering up to 3 years.
You can find our complete guide to mortgages for self-employed people here.
You move jobs frequently
Buying a new home when you start a new job seems to make sense. You might have a higher salary or be moving to a new area. But lenders like things to be predictable, and their definition of stability does not include big life changes. You might find you have a bigger selection of deals to choose from if you wait 6-12 months after starting a new job before you apply for a mortgage.
4. The property: proving it’s worth the lender’s investment
Some of the things that can prevent you from getting a mortgage have nothing to do with you. If you hear that your mortgage was “declined by the underwriter after valuation,” the property was the problem.
As part of the house buying process, an estate agent will have valued the property you want to purchase. But once you’ve made an offer, the lender will do their own checks to make sure that they agree – these checks can sometimes derail your mortgage application.
The surveyor decides that the property is worth less
The surveyor can decide that the property is worth less than the mortgage amount you’re applying for. If the surveyor undervalues the place because they think home improvements are needed, you do have the chance to show that the work they see as essential can wait or be done at a lower cost than they claim.
The property is unique
It’s harder to get mortgages for homes with ‘unusual construction’. In the UK, this usually means that the house wasn’t built with bricks and mortar. Even if a property is modern, efficient, or architecturally important, conventional lenders sometimes prefer to steer clear. In this situation, it’s worth trying to find a specialist provider.
The location is a risk
If your future home sits on a flood plain, has issues with damp, or needs extensive renovation, it might be harder to get a good deal on the mortgage. To the lender, there’s too big a risk of something going wrong with the building for them to put up the money. In this situation you might only have access to mortgages that need a larger deposit or a higher interest rate.
mortgage application declined what next
If your mortgage application is declined, your plans to buy a home could be thrown off course. Hopefully, it will only be a minor setback and you can quickly resolve the issue and close on the home. But if that doesn’t work, you may need to look for a different type of mortgage, find a new lender or improve your creditworthiness before trying again. Here’s what to know about why your mortgage may have been denied and what steps you can take next.
Common Reasons Your Mortgage Could Be Denied
Mortgages are one of the largest and most complex consumer loans, and there are many reasons a lender might deny your application. Some common reasons include:
Getting prequalified or going through a more rigorous preapproval for a mortgage could help you find out if you’re likely eligible for a mortgage and how much you can borrow.
5 Steps to Take After Your Mortgage Is Declined
If your application is denied, your next steps may depend on the reason for the denial. First find out exactly why the loan was declined, then determine which action would be best for your situation.
1. Contact Your Loan Officer or Broker
The lender will send you an adverse action letter with reasons the application was denied, but these aren’t always simple to understand. Reach out to your loan officer or broker, who should be able to explain the details of your letter.
In some cases, the denial could be due to an easily addressable issue, such as a typo, missing form or request for additional information. Quickly clearing these up could save the deal. If there’s a larger issue, your loan officer or broker may be able to explain your options.
2. Ask About Other Types of Mortgages
If the denial was based on your financial or credit information, you can ask about different types of mortgages that may better suit your situation. Your lender may even suggest other programs for you based on your application and the reason for denial. For example, if you applied for a conventional loan and were denied, perhaps you could get approved for a government-backed FHA loan instead.
Loan officers may work for a specific bank, credit union or lender. If your loan officer isn’t able to help, you might want to branch out to other lenders that offer other types of mortgages or have different requirements. Or, a loan broker may be able to shop around on your behalf.
3. Reduce Your DTI
You might be denied if the lender decides your DTI is too high—in other words, your monthly debt payments are too large a percentage of your income. The maximum limit can depend on the lender, type of loan and other factors (such as your credit score), but there may be a maximum back-end DTI of 43%. A DTI of 36% or lower could be a good target if you want to increase your chances of getting a mortgage.
Lowering your DTI can be difficult because it depends on your minimum monthly payments. So, paying down your credit card balances might not have a big impact on your DTI unless you can pay off a couple large balances.
But completely paying off a loan or consolidating debt to lower your monthly minimum payments might help. Increasing your income, either by negotiating a raise or finding a higher-paying job, could also quickly improve your DTI.
4. Improve Your Credit
Lenders’ minimum credit score requirements can vary from from 500 to 700, which is one reason looking at other lenders and types of loans are good first steps when your mortgage application is declined.
Getting your credit ready to buy a home can take time and you may need to pay off or settle past-due accounts and wait for the impact of recent negative marks to diminish. You can also take steps to improve your credit, such as making all your debt payments on time and paying down credit card balances to reduce the percentage of available credit you’re using (your utilization ratio).
If you don’t have any credit accounts, opening a secured credit card or credit-builder loan might be helpful. However, new credit accounts can make qualifying for a mortgage more difficult, and the payments may increase your DTI.
Becoming an authorized user on someone else’s credit card account and getting the benefit of their credit history might also help your credit scores. But sometimes, mortgage lenders won’t include these accounts when determining your eligibility for a loan.
5. Save for a Larger Down Payment or Consider a Less Expensive Home
You could also retry with a smaller loan, either by increasing your down payment or finding a less expensive home to buy. Both options can take time, and neither is ideal if you had your heart set on the home you already found.
Look into a down payment assistance program to see if you can get help. If a relative offers to gift you money, speak with your loan officer or broker about the best approach. Lenders might see a large deposit in one of your accounts as a red flag if they think you need to repay the money.
Check Your Credit Before Applying
Your credit scores can have a direct impact on whether you qualify for a mortgage and the rates you receive. You can check your Experian credit report and a FICO® Score for free from Experian. The free score could help you estimate where you’re at and monitor your progress if you’re working to improve your credit. The Experian credit tools also give you personalized insights into what’s impacting your credit score the most.
how soon can you apply for a mortgage after being declined
How soon can you apply for a mortgage after being declined?
You can usually apply for a mortgage immediately after being declined but this is not advised as the mortgage lender who declined you would have carried out a hard credit check on you and this hard credit check will have left a fully visible imprint on your credit file which will be visible to everyone who checks your credit file.
If you are unsure of this or what your credit score is you can check to see if the mortgage lender left a hard credit check on your credit profile.
If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.
Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.
Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.
Applying for a mortgage immediately after you have been declined may, therefore, be risky as the new mortgage lender could automatically reject you as most automated decision-making systems may be programmed to reject borrowers who have previously had a hard credit check on their credit profile within a certain timeframe.
You should therefore either wait a few months or weeks before applying for a mortgage after being declined or you should at least request that the new mortgage lender carries out a manual underwriting check when accessing your mortgage application before they decide on whether to give you a mortgage offer or not.
A manual underwriting check will allow you or your mortgage broker the opportunity to provide more information in regards to your previously declined mortgage application.
This could greatly increase your chances of getting a mortgage offer.
You may also want to consider using a mortgage broker when applying for a mortgage after been declined for a previous mortgage.
A mortgage broker may know what so of mortgage lenders may be willing to consider you given the consequences.
Use a mortgage broker for your mortgage if you have been declined
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.
This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.
In this brief guide, we answer the question “How soon can you apply for a mortgage after being declined?”
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.