If you’re interested in buying a property but you don’t have the cash on hand, you may get a loan or a mortgage to make that purchase. You have to apply to the lender to see if they will approve you for a loan that is large enough to purchase the property you’re considering.
Many people go through this process fairly smoothly, getting preapproved, making an offer, getting final approval and then making the purchase. But it’s also possible to get rejected for the mortgage, which could derail the entire process. Why would this happen?
Your income-to-debt ratio
For one thing, if your income-to-debt ratio is too high, lenders may not believe that you can afford the additional loan payments. They want to look at what you already owe for credit card loans, student loans, car loans and things of this nature.
Your credit score
In some cases, people will attempt to get a loan and find they don’t even have a credit score, perhaps because they are too young or because they’ve never borrowed and repaid money in the past. This is why it’s good to use a credit card to build up your credit score first. But you could also be rejected if you have a low credit score, so it’s important to use that credit card wisely.
Finally, the lender may just look at any major changes in your life that could impact your financial position. Maybe you just got a new job. Perhaps you recently got a large cash deposit. A lender may be concerned that you won’t have the same level of income in the future, no matter what your finances look like at the moment, since the loan could be a decades-long commitment.
Understanding why rejections happen can sometimes help you to prepare in advance to increase your odds of getting approved. During this entire transactional process, carefully consider your legal options.