It is not uncommon for people to be denied a mortgage by the banks. In fact, there are more people that get denied a mortgage by the banks than there are that get approved! There are many reasons that influence the decision that banks make on individual applications. Ultimately the decision comes down to a risk assessment and ability of the borrower to repay the loan to the bank.
One of the first things a bank takes a look at is the applicant’s credit history. Individuals, who get denied a mortgage based on their credit, do so because of their credit report shows a history of dishonoured payment and other delinquencies. Sometimes these delinquencies are caused by unexpected circumstances in life such as a family death, loss of job, etc. Regardless of the reasons, in most cases it will still contributed to being denied a mortgage by the banks. The best thing, an applicant can do is to get back on track with their credit status and or seek alternative lending solutions through a mortgage broker.
Many banks also pay attention to the debt ratios of the applicants. Usually the ratios need to fall under 40% (TDS) of the gross annual income of all applicants in order to get approved by the banks. The debt ratio’s will include the mortgage payment, property taxes, heating costs (approx.) and other personal debts of all applicants. If the debt ratios are not in line with the banking guidelines, then you will also be denied a mortgage for this reason. Much like with having some credit issues, alternative lending solutions do exist for clients that require some leniency on the maximum debt ratios permitted by the lender. Some lenders allow the ratios to go up wards to about 50% (TDS). Keep in mind that you will most likely pay a premium on the interest rate, since the risk taken by the lending company has now increased as well.
Another common reason for being denied a mortgage by the banks has to do with the income of the applicant/s. If the income is assessed by the banks to be insufficient to carry the monthly mortgage payments then this will lead to a denied mortgage response. Sometimes, the income is sufficient but the employment history is not stable or consistent with the employer. This will lead banks to feel unsettled with the mortgage request and ultimately lead to a rejection. Again, there are alternative lenders in the mortgage world that are willing to accept these circumstances and who are willing to provide a mortgage when other banks turn you down.
There are other reasons that contribute to being denied a mortgage by the banks and there are also solutions that exist to help you get approved for a mortgage regardless of your circumstances. If you are interested in finding out how we can work with you to achieve your home ownership goals, please contact us today!