Four Reasons A Lender May Decline Your Home Loan

By Guest | Jan 26, 2012

This is a guest post by James Helliwell. Do you have an experience of having your home loan application rejected? How did you overcome it? Would you like to share your tips and advice in successfully getting through the home loan approval process with our readers as a guest article? Look at the guidelines and start writing now.

After the painstaking time and effort of applying for a mortgage, it’s highly possible in today’s market that the lender will notify you that you do not qualify for the loan. Lenders have stricter guidelines and requirements in qualifying applicants for mortgages in the recent years, and people seeking a mortgage loan should not automatically assume that it will be approved. The following 4 tips will help you not only understand the lending process, but will also help increase your chances of obtaining the loan:

1. Debt Ratio:

Lenders look at the past credit history of a borrower. They look for your mortgage payments to be under 28% of your monthly income and other debts under 8%. If the other various debts exceed 8%, this would be added to the amount needed for the housing costs. An example of this would be if your debts are 11%, the lender would finance a loan equal to 25% of your gross monthly income.

To keep your loan from being rejected based solely on this reason, keep credit card usage to a minimum and pay off the balances. If you have other existing mortgages, you may need to sell a home to lower your mortgage debt, to make room for a new one.

2. Job Stability:

A lender will be more cautious with your loan if you change employment during the home loan application process. Most lenders require a borrower to have a minimum of two years steady income with the same employer. A positive exception would be a borrower who is employed in the same field, but switches to a job with a higher salary bracket. At the opposite end of the spectrum are borrowers who leave the stability of a job and start up their own business. Borrowers who are self-employed and whose income is based solely on commission also have a difficult time qualifying for a home loan.

To avoid falling into this hazard, it’s best not to change your place of employment or start a business on your own during your home loan application.

3. Fluctuation in Credit Score:

The loan application process can take several weeks and during this time, the lender has sufficient time to thoroughly investigate your credit history numerous times. This is an important time for the borrower to do everything possible to keep their credit scores from dropping. Make sure to pay all bills on time and do not apply for credit cards or other loans.

To know where you stand before starting the loan process, do a thorough investigation of your credit report on your own to make sure everything is in order and in good standing. If you notice errors, get them straightened out immediately, so you won’t have difficulties later on.

4. Clerical Errors:

The loan application process involves quite a bit of paperwork and even though knowledgeable professionals are there to help, it is the borrower’s responsibility to check everything thoroughly. Make sure to go over your application several times for errors, and read all documents, so as not to put your application at risk.

Byline: James Helliwell is a property site and writer owner from the UK. If you’re moving house, have a look at My Online Estate Agent. My Online Estate Agent is one of the UK’s leading online estate agents and advertises on leading property portals for a low fixed fee.