Buying your first home is an exciting milestone in life, but it can also be a stressful and overwhelming experience. One of the most crucial steps in the home-buying process is securing a mortgage.
Unfortunately, sometimes first-time buyers may find that their mortgage application is declined. If this happens, it’s important not to panic. There are steps you can take to understand why your application was rejected and what you can do to improve your chances of success in the future.
Understand Why Your Application Was Declined
Before taking any action, it’s essential to understand why your application was rejected. Mortgage lenders consider a range of factors when deciding whether to approve a mortgage application, including credit score, income, employment history, and debt-to-income ratio. If any of these factors don’t meet the lender’s requirements, it could result in a declined application.
When you get turned down for a mortgage, the lender will usually send you a letter explaining why you were turned down. This letter will give you valuable insights into what needs to be improved to increase your chances of getting a mortgage. If you’re unsure about anything in the letter, you can contact the lender to ask for more information.
Take Steps to Improve Your Credit Score
When you apply for a mortgage, your credit score is one of the most important things that lenders look at. If you have a low credit score, it can make it hard for you to get a mortgage. If your application was declined due to a low credit score, there are several steps you can take to improve it:
Check your credit report: You can obtain a copy of your credit report from one of the UK’s three credit reference agencies: Experian, Equifax, and TransUnion. Check your report for errors or discrepancies, and if you find any, get them corrected.
Make payments on time: Late payments on loans, credit cards, or other debts can negatively impact your credit score. Make sure you pay all your bills on time.
Reduce your debt: Lenders are more likely to approve mortgage applications from individuals with lower levels of debt. If you have outstanding debts, focus on paying them off as much as possible before reapplying for a mortgage.
Avoid new credit applications: Each time you apply for credit, it leaves a footprint on your credit file, which can negatively impact your score. Try to avoid making any new credit applications while you’re trying to improve your score.
Consider a Different Lender
If one lender turned down your mortgage application, it doesn’t necessarily follow that you won’t be able to do so elsewhere. Different lenders have different criteria for approving mortgages, so it’s possible that another lender may be willing to lend to you.
Consider speaking to a mortgage broker, who can help you find a lender that may be more willing to lend to you based on your individual circumstances. However, bear in mind that applying for too many mortgages in a short period can also harm your credit score.
Review Your Finances
If your mortgage application was declined due to a lack of income or a high debt-to-income ratio, it may be worth reviewing your finances to see if there are any changes you can make. For example, you could look at ways to increase your income, such as taking on a side hustle or asking for a raise at work. Alternatively, you could consider paying off some debts to reduce your monthly outgoings.
Receiving a declined mortgage application can be disheartening, but it’s important not to give up. Take the time to understand why your application was declined and take steps to improve your chances of success in the future. You can improve your credit score and look over your finances to increase your chances of getting a mortgage for your dream home if you are patient, persistent, and willing to work hard.