You may have good credit, a stable job with favourable income and a down payment saved. However sometimes there may be less-obvious reasons why you may be declined for a mortgage.
Reasons why you may be declined for a mortgage:
1) The property you are buying
Some lenders shy away from certain properties. Some examples are a condo with smaller square footage, a rural property, a mobile home, a property on leased land, and so on.
2) Your credit score
Although you may feel you pay all your bills on time, sometimes the credit bureau will show a different picture. Your credit score can be lower for a variety of reasons. Some examples are applying for credit often and spending close to or more then your credit limit. Also, cosigning for someone that did not pay their bills on time. This can be a reason you may be declined for a mortgage.
3) Not having enough credit items or credit history
Many lenders and mortgage insurers want to see at least two credit items with strong credit history for at least two years. Many credit items with limits under $2000 will not assist in building your credit score as well, so a credit card with a $500 limit may not be enough.
4) Lack of history for your down payment
Depending on your down payment amount, lenders need to see a 30 to 90 day history of your down payment funds. Cash advances, lines of credit, loans from family and friends, gifts from non-immediate family members, cash, etc., are not acceptable forms of down payment. Although you may have the enough funds needed, the lender may not accept the source.
5) Your employment
Currently being in a great hourly job or off to a good start with self employment, may not be enough to meet a lenders requirements. For all non-salaried employment like self employment, a lender will use an average of your last two years of taxable income. Also, if you do not have two years tenure in your current employment, that may cause a challenge as well. Probationary periods can also affect a mortgage application. Lenders typically cannot use an applicant’s income while they are on probation.
6) The appraisal comes in too low
Sometimes an appraiser may not agree with the price on the offer. This can be seen more often in fast-paced markets and multiple offer situations. A lender will lend on the lower of the purchase price or the appraised value and if there is a difference, a client would need to make that up with a larger down payment.
Being prepared and having a knowledgeable team helping you is your best defence against challenges that can arise when applying for a mortgage and buying a house. Contact me to learn more about reasons you may be declined for a mortgage.