If you’ve ever been denied financing for a mortgage you know how deflating it can be. You may feel ready to move onto the next step and own your own home, but lenders don’t see you as a good investment for whatever reason, and it’s not a nice feeling at all.
However, before you get too bent out of shape about it, it’s probably a good idea to look at the situation a little more analytically and less emotionally. Emotions tend to get in the way when you’ve been denied for a mortgage. Keep in mind it has nothing to do with you personally, and it’s all about business.
A Business Decision
When a lender decides not to approve your mortgage, it is a business decision. It’s easy to get caught up in the thought of big corporations flexing their muscles and squashing the little guy, but think of it as if the lender is a person. If someone lends somebody else money, they want to do so feeling confident that they’ll get that money back someday.
You would be reluctant to lend someone money if you weren’t confident they could pay it back, and a big lender is the same. If your credit score or a handful of other factors aren’t what they’d like to see, you may be denied. And remember, the numbers, current situation and your history are all they have to go by when making a decision. Take a look at some of the typical eligibility requirements to make sure everything is in order.
Good Credit Score
A decent credit score is usually one of the requirements when looking for a mortgage. It doesn’t have to be perfect, but each lender will have a number in mind that they’d like yours to be before they give the green light. Credit score is affected by things like not paying your bills and debts, bankruptcies, consumer proposals and similar things.
This one may seem a little obvious, but steady income is definitely a must if a lender is to believe you will make good on your mortgage. And the longer you’ve been at a particular job the better. It’s never a bad thing if you make a lot of money, but your income in relation to how much you owe is more important. A high income with even higher debts won’t do you any favors.
Low Debt Levels
And that is why your debt levels should be low in comparison to your monthly income. Your debt to income ratio must meet the current requirements or a lender will determine you can’t add to that debt amount and still make all your payments. Remember, they are in the business of making money.
Too much debt can put the brakes on your mortgage approval and so can too much credit. If you have multiple credit cards or lines of credit, they may be seen as your ability to run up a large amount of high interest debt. You might be the most responsible person around and have no intention of ever doing that, but the lender doesn’t know that. All they see is that you have the potential to use lots of credit. Talk it over with your mortgage broker ahead of time and consider closing a few outlets if necessary.
Are You Extended?
Not being a co-signer on anyone else’s loans is often a factor that results in a mortgage being denied. Even if your child or sibling or friend always pays on time and is in good standing, if they default that lender is coming after you for the balance.
It’s nice to help people out, and if all of your numbers are what they should be you may still be able to get a mortgage, but it is definitely something to consider. If you already have a home and don’t plan on getting another, you have nothing to worry about.
Create a Strategy
One of the keys in the mortgage approval business, is figuring out any potential issues before you dive in with both feet. Don’t just assume that everything is great because you have a job and don’t have a pile of debt. Take a look at possible sticking points and then address them prior to applying for a mortgage.
If it seems like some of the more conventional lenders have an issue with you, think of using a broker who has access to many different lenders. A good mortgage broker usually isn’t bound by certain products or systems and they can often find you the deal that you want.
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The author of the article is Jeremy Benson. He has been writing about finance, mortgage and Canadian law since 7 years. Blogging is one among his greatest passions. Follow him on Twitter@jeremybenson19.