Getting a Mortgage: How to Avoid Being a ‘Twenty-Five Percenter’
Depending on the statistics you believe, anywhere from 25% to 33% of all mortgage applications are denied. That is not good. Not only will a denial prevent you from buying that house you’ve been dreaming of, but it might also slow down or even derail many of the other plans you have.
For the purposes of this post, we will assume an average mortgage denial rate of 25%. Your being denied a mortgage would make you a ‘twenty-five percenter’. How can you avoid this label? By educating yourself about how mortgages work. A little knowledge goes a long way.
Reasons Mortgages Are Declined
Learning how to avoid being declined a mortgage starts with understanding why it happens. There are as many reasons as there are lenders, but the most common reasons have to do with income, credit history, and incorrect mortgage application information. If any of the following apply in your case, you could easily become a twenty-five percenter:
- You have a history of late or missed payments
- You’ve had a county court judgement (CCJ) or default in the past six years
- You have insufficient income to make the required payments
- You are self-employed and cannot verify your income
- There are too many credit applications on your credit report
- There is erroneous information on your application form
- You are unable to prove your identity and/or current address.
Among all of these reasons, the first three are the most common of all. It really boils down to your ability to repay what you borrowed. If a lender decides you are too much of a risk, your mortgage application is likely to be denied. Now, let’s talk about making sure that doesn’t happen to you.
Start with a Mortgage Broker
If you are currently in the market for a house, the first step is to start working with a mortgage broker right away. A mortgage broker is also a financial adviser more than capable of helping you understand your current financial position in light of the mortgage you hope to eventually get. Your mortgage broker can advise you on many of the things you will read in the following paragraphs.
Shore up Your Finances
The next step is to start shoring up your finances even as you are looking for a house. Make sure you pay each and every one of your bills on time. There is no room for late payments here. If that means you have to cut out some unnecessary expenses – like your unlimited phone plan, for example – then do it. Any recent history of late or missed payments will jeopardise your chances of getting a mortgage.
Note that if your history of poor financial management is extensive, you may have to delay buying a house for 6 to 8 months. If you have CCJs or defaults on your record, you might want to wait as long as a year. The point is that shoring up your finances increases the chances that your mortgage application will be approved. It also gives you access to better rates and terms as well.
Don’t Apply for Additional Credit
You will help yourself a great deal by not applying for any additional credit during the time you are looking for a house and mortgage. Remember that every credit application gets recorded on your credit history. If lenders see you applying for too many credit accounts, whether you are approved or not, they automatically start suspecting that you are not a good money manager.
Get Your Documents in Order
Once you are ready to finally apply for a mortgage, you are going to need some documentation. This is something to ask your mortgage broker about as early in the process as possible. Your broker can tell you exactly what you will need to verify your income, prove your identity, and so forth.
If you are self-employed, you are going to have to gather more documentation in support of your income. Lenders typically like to see at least a couple of years’ worth of tax and business records proving that your income is consistent. Again, your mortgage broker can tell you exactly what you need. He or she will probably suggest your self-assessment tax returns at the very least
Be Open to Anything
Finally, be open to anything where mortgages are concerned. A mortgage broker may look at your situation and know right away that getting qualified through a traditional bank, credit union, or building society is not going to be successful. He or she may look at other options – like private lenders and online banks, for example.
Your mortgage broker might also advise you look into government assistance like the UK’s Help to Buy scheme. Do not discount these things. Every little bit helps when your circumstances are such that being approved for a mortgage is not guaranteed.