Being rejected for a home loan can be heartbreaking, especially if you think about all of the hard work that you put during the process. Not only you’ve searched for months to find your ideal home in Utah County, but you also did an exhausting legwork to secure the requested documents. But rather than dwelling on your frustration, take it as a valuable learning experience. Rejection may give you a temporary heartache, but it can improve your chances of approval on your next loan. Let’s explore the possible reasons why lenders refuse mortgage applications.
1. A recent change in employment
Switching jobs prior to your application can affect your qualification for home loans in Utah County. Mortgage providers want to see stability and check your length of employment, income, position title, and the likelihood of continuous employment. Thus, solid work history with the same employer for two years can increase your chances of getting approved for a loan. However, your application could be in jeopardy if you recently changed job fields or switched from a high-paying position to a lower-paying job in the same area.
2. Inaccurate or incomplete information on the loan application
When you’re applying for a home loan, you need to fill out a five-page document with the data required by the lender. If you fail to provide accurate and complete information, it can result in denial of your mortgage application. Mistakenly omitting something or carelessly skipping some parts could mean painful rejection. If a particular section is confusing, always ask the lender for clarification.
3. You recently take on new debt
Applying for a new credit card, getting a car loan, or a personal debt can hurt your application. It will result in a hard inquiry on your credit report that can lower your credit score by a few points. Taking on new debt can also increase your debt to income ratio, which is a red flag to mortgage lenders.
4. Your down payment is too small
A smaller down payment can reduce your chances of getting approval. Lenders want assurance that you can afford mortgage repayments, and paying the minimum amount can rarely give them peace of mind. The bigger the downpayment, the lower the monthly repayments you’ll have to make, which means lesser risk for lenders.
5. Error on your credit report
A potential error on your credit report can have a damaging impact on your credit score. Errors like old bad debt, balance errors, and mysterious accounts can make you appear riskier to mortgage providers. Before applying for a loan, review your credit report thoughtfully, check for common mistakes, and have them fixed as quickly as possible.
You may be denied of your home loan, but it doesn’t mean that you can not be a future homeowner. Read the rejection letter carefully so you could understand why the lender turned down your application. Save yourself from potential heartache and avoid applying to other lenders immediately after being rejected. Try to improve whatever is unsatisfactory and make sure that you’re in a better financial position when you apply again.