You’ve gotten so excited at the prospect of buying your first home, so it may come as a big surprise when a bank rejects your mortgage application. Lenders have to be careful about who they lend their money to, and they often have strict criteria that you must meet to qualify.
Yes, this is a big setback, but it’s not an insurmountable challenge. There are things that you can do to get the funding you need.
Explore the Reasons Why
You have the right to know why the bank turned you down, so make sure you ask all the questions you have, so that you fully understand what went into the decision.
In most cases, an outright rejection means that you didn’t have a high enough credit score to qualify. This can come from making credit mistakes in the past. Some people have low credit scores simply because they’re young and haven’t needed to use credit. These things can be easily remedied, though it can take a year or more.
Other times, when people say that their mortgage application has been rejected, what they really mean is that they didn’t qualify for the amount that they wanted to borrow. For instance, the homes they’ve been looking at might have monthly payments around $2,000, but the bank determines that they can only afford $1,500. There are things to do in this situation as well.
Try a Different Lender
Each lender has their own criteria. It’s possible that you were rejected after missing the lender’s cutoff by a small amount. If a different lender has more lenient criteria, you might now qualify for the loan you want. It may not hurt to apply with a different lender to see what happens.
When doing this, though, be sure to pay attention to interest rates. You’re probably considered a “high-risk” borrower, and that could mean higher interest rates.
Boost Your Credit Score
If the primary reason you were rejected was due to your credit score, you could do well by improving the score. The two things that play the biggest role in determining your score are whether or not you make your payments on time and how much debt you have.
Always pay your bills on time. Set up automatic payments for the minimum amount before the due date.
If you have a lot of debt, work harder to pay down that debt. High debt decreases your credit score, and the monthly payments you have to make on your debt also decreases how much money you can borrow for your mortgage. The less debt you have when you buy a home, the better.
Finally, if your score is low because you haven’t used a lot of credit, it’s time to get a credit card. Apply for one designed for first-timers. Use it sparingly, and always make on-time payments.
Increase Your Down Payment
If your biggest problem is that the bank won’t lend you the money you need to buy the home you want, you may be able to improve your situation by making a bigger down payment. Larger down payments decrease the amount of money that you have to borrow, so you’ll have smaller monthly payments. Even a $10,000 or $20,000 difference in your down payment could help you qualify for the home you want.
Keep Your Job
Occasionally, lenders are hesitant to approve mortgage applications when the applicant does not have a long work history. This might be true for someone just out of college who has only been at their job for a few months. It can also be true for someone who has a spotty job history: either hopping from job to job or having several large gaps in employment.
To combat this, you need to stick with your job. Changing companies to get a promotion is one thing, but other types of moves could appear fickle.
Adjust Your Expectations
Sometimes, a rejected mortgage application is simply a big sign that you need to adjust your expectations.
You can still look for homes that have the types of features you want within your price range. If you’re willing to go house hunting with a more realistic idea of what you will qualify for, you’ll start to see all of the great things that are out there. You may be able to find a great “starter” home that will allow you to build up some equity for a larger down payment on your next home, or you may find a home that’s perfect for you.
Adding a co-signer and/or gifted down payments many be another option to explore. Gifted funds for a down payment aren't taxed in Canada and a co-signer's name could be removed when main applicants are able to qualify on their own or add another co-signer (such as a spouse) later.
Not being able to get the mortgage you want will certainly throw a monkey wrench into your plans, but it doesn’t mean that you’ll be stuck renting forever. If you work hard to correct the problems the bank saw with your application, you’ll have a mortgage in no time at all.
Pacesetter Homes also have some great relationships with expert mortgage specialists who can help provide you with effective solutions based on your unique situation. We can connect you with these highly experienced, mobile and dedicated individuals who are available 24/7 and will help you accomplish your dream of home ownership.