Common Reasons Mortgage Buyers Are Denied a Loan

When you are buying a new home, it is an exciting process. You have spent months searching and have found the home you want to purchase. You are ready to move into the home of your dreams. Unfortunately, you have found out that your request for a mortgage has been denied. This can be a deflating experience. Fortunately, there are ways to avoid this by understanding the most common reasons why a buyer is denied for a loan.

The Loan Requirements Have Changed

One of the most common reasons why you might be denied a mortgage is that the terms of the loan have changed. For example, the lender might have raised the minimum credit score requirement.

This might sound unfortunate; however, it does happen from time to time.

Loan requirements might change from the pre-approval stage. If this happens, think about searching for a loan from a different lender.

You Added Debt

The debt-to-income ratio is going to matter when applying for a loan. If you are pre-approved for a loan and your amount of debt changes, the lender is going to look at this closely. Common forms of debt include student loans and credit cards.

Even small changes in your debt amount can impact your ability to qualify for a loan. Try to avoid buying a new car or maxing out a credit card during the mortgage application process. This will help you keep the loan you've worked so hard to earn.

You Changed Jobs

Finally, employment status also matters to the lender. When you take out a loan, the lender needs to know that this will be repaid. This depends on you having a steady stream of income from your job.

If you decide to change jobs between the time of pre-approval and the time of purchase, your employment history and income stream do not mean as much. While changing employment will not totally disqualify you, make sure to discuss this possibility with your lender. Changing jobs within the same field is likely fine; however, moving to a new career entirely can be a red flag.

Mortgage Denials are Frustrating

It is frustrating to have your request for a loan denied. Fortunately, understanding these common reasons can help you avoid this deflating experience. Think about all these possible scenarios when you apply for a home loan. And rely on the expertise of a trusted mortgage advisor with Bond Street Mortgage.

Frequently Asked Questions

Loan requirements can change between pre-approval and final approval, such as an increased minimum credit score, which can lead to denial. If this happens, consider applying with a different lender.

Increasing your debt, like taking on new student loans or maxing out credit cards, raises your debt-to-income ratio and can impact your ability to qualify for a loan. Avoid adding debt during the mortgage process.

Changing jobs can affect your employment history and income stability, which lenders assess for loan repayment ability. Changing jobs within the same field is usually acceptable, but switching careers can raise concerns.

Changing jobs does not necessarily disqualify you, but it may complicate approval; it’s important to discuss any job changes with your lender.

Buyers should consider applying with a different lender, as loan requirements can vary between institutions and may be more favorable elsewhere.