Applying for a mortgage may seem like a pretty simple thing to do, but there are a number of factors that get taken into consideration before your mortgage loan can be approved by the bank or building society.
Here are 5 reasons why your application might get rejected.Take these tips into consideration before applying for a mortgage.
Credit check
It is very important that you check your credit file before you apply for a mortgage. You can get a free credit report from noddle.co.uk. You need to check for anything unusual which may indicate some form of identity fraud and any other incorrect information.
Remember that if you are rejected by a bank or Building Society, it will show up on your credit file and will make it more difficult for you to get approved in the future. That is why it is so important to check your credit report before applying for a mortgage.
Loans and credit cards
The banks and Building Societies will be able to see exactly how much credit you have and your payment history. Your credit file will show up to six years of payment history, but most mortgage lenders will only check the last two years. If you have missed more than two months on your payments at any point in the last year, then it advisable that you postpone your application until the loan or credit card is paid up to date and for at least a year. You can ask your mortgage advisor or bank if this will be some kind of a problem before you apply.
The banks will also ask you how much credit you have and how much you pay back per month. Lenders need this information to calculate what your disposable income is and to see if you will actually be able to afford the repayments.
Payment history or lack of one
Lenders will also need to know how well you have managed credit in the past. If you have no credit history, it is difficult for a lender to figure out if you will be able to make monthly payments. It is advisable to apply for credit and pay for at least one year, every month before applying for a mortgage. Always make sure that you pay the full balance each month to avoid paying extra interest.
Employment Gaps
Lenders need to see that you are financially stable. You can prove this with regular payments to credit cards and/or loans. If you have been unemployed in the last two years, then this may lead to your mortgage application being delayed. Different lenders have different criteria and a Mortgage Advisor should make you aware of anything that may affect your loan.
Insufficient Information on the Application Form
If you leave out information on an application, a lender will assume that you want to hide negative and adverse details which could affect your chances of being approved. Be honest with the information.