Gathering and filling out the paperwork for a mortgage is a long, arduous process. When a banker tells you that his institution has decided not to approve your home loan, the disappointment can be intense.

You naturally wonder why you were turned down. It is more difficult to get a mortgage today because lenders have tightened the standards they use when deciding who should get a loan. You need to educate yourself about the lending process in order to present yourself in the best possible light to increasingly critical lenders. Read on to discover five reasons bankers decline home loans, and learn how to avoid these problem areas.

1. Too much debt

Financial institutions take a close look at your total debt when deciding whether to give you a mortgage. They prefer that an individual’s housing cost stay at 33 percent of gross income or below. They like to see consumer debt kept under 5 percent of gross income. If your consumer debt, which includes credit card and auto payments, goes over 5 percent, it slices into the 33 percent allocated for housing costs. The higher your consumer debt, the smaller the mortgage you can obtain. Experts agree that those possessing a debt-to-income ratio above 50 percent are courting financial disaster. Take care to keep your credit card debt low by living within your means and your banker will take a more favourable view of your financial record. If you have existing mortgages on other properties you may have to sell a property or spread your exposure out across several financial institutions to secure another mortgage.

2. Changing jobs

Financial institutions look for stability and consistency, especially when it comes to your employment, and changing jobs might make it more difficult for you to obtain a home loan. Lenders prefer to see that you stayed at your job for at least two years. If you have moved to a better-paying job in the same employment area or a similar area, your chances of obtaining a mortgage should not suffer. Be careful, though, if you are thinking of moving to self employment from a salaried position. When you become self employed, you no longer have any degree of salary consistency to demonstrate on your loan application. Lenders are more careful about lending money to self-employed mortgage seekers and employees who rely heavily on sales commissions in their work.

3. Wavering credit score

Several months may elapse between filling out your mortgage application and finalising the loan. Make sure you make all payments on time during the mortgage application period. Your financial institution may make more than one check on your credit during this time. Do not open any more lines of credit. When you take on more debt, you make the lender question your financial stability. Do not apply for credit cards, since credit inquiries will affect your credit score. Before applying for a mortgage, check your credit report, there are many websites that will do this for you for free. If you find errors, report them to the agency in question. Resolution may take several months.

4. Missing mortgage payments

Missing a mortgage payment is a red flag to a mortgage lender, so it is vital that you make all of your major payments while applying for a new home loan. Any payment made 30 days after the due date is considered past due. Financial institutions will regard you as a credit risk if you fail to keep up with your current mortgage. A steady job and low expense ratio may allow you to get conventional financing if you have had just one late payment in the previous 12 months. Make more late payments, though, and financial institutions may turn you away. Discuss any payment problems with your current mortgage holder so that you can work out a solution.

5. Overlooking details

Study every form you encounter during the application process very carefully. Take the time to understand the forms in front of you and what you are filling out on them. Provide only complete and accurate information. Do not leave blank spaces or miss any details. You are seeking to borrow a very large amount of money, so your financial institution wants to know everything about you and your financial history.

Bio

Andrew Potter has been an estate agent for over ten years and regularly contributes articles to the UK finance and real estate arena. Andrew runs My Online Estate Agent one of the fastest growing online estate agents in the UK. My Online Estate Agent provides all the tools and guides you need sell or let a property for a one off fixed fee.