Applying for a mortgage or any loan can be difficult if you are unaware of your possibilities. Being denied a mortgage and a mortgage renewal or refinancing can be worrisome for most individuals because you're seeking loans to help buy a house to live in. You should, therefore, constantly be ready for your application to be turned down. The quantity of mortgage applications rises along with the demand for homes in Ontario, and lenders are more eager to reject applications that don't fit their requirements. In this article, we'll discuss your additional options if your mortgage application is denied.

Common grounds for denying a mortgage

One of the most extensive and complicated consumer loans is a mortgage, and there are various reasons why a lender can reject your application. Typical explanations include

• You have a too-high debt-to-income ratio. Mortgage lenders calculate your debt-to-income percentage by comparing your monthly loan payments and income (DTI). DTI ratios are significant before and after receiving a mortgage (front-end and back-end DTI). A high DTI could prevent you from getting authorized for a mortgage.
• Your income needs to be more consistent. If you just changed employment, especially if you transitioned into a new career, if the new position is commission-based, you can also experience difficulties.
• A more significant down payment is required. While some mortgages only require a 3.5% or 5% down payment, others may require a more substantial down payment or boost your approval chances.
• You have too low of credit scores. Mortgage lenders frequently review a combined credit report that contains data from all three leading credit reporting agencies. They might adhere to minimal score requirements and employ particular score models based on each piece.
• Your credit history contains blemishes. Regardless of your credit score, a lender may reject your application if it includes late payments, collections, a recent foreclosure, or bankruptcy.

Five Steps to Follow If Your Mortgage Is Rejected

Your next course of action if your application is rejected could depend on the reason. Determine which course of action would be appropriate for your case after learning why denied the loan.

1. Speak with your broker or loan officer

Your lender will give you an adverse action letter outlining why your application was rejected; however, these reasons are only sometimes clear-cut. If you have any questions about the specifics of your letter, get in touch with your loan officer or broker. In other circumstances, the refusal can result from a simple mistake, omitted form, or demand for more information.

2. Enquire about further mortgage options

If the refusal was based on your credit or financial information, you might inquire about various mortgage products that might be more suitable for your circumstances. Based on your application and the reason for rejection, your lender might even recommend alternative programmes. For instance, you might be eligible for a government-backed loan if your application for a traditional loan was rejected. Loan officers could be employed by a particular bank, credit union, or lender. Consider looking into other lenders with different requirements or offer various types of mortgages if your loan officer cannot assist you. Or a loan broker can compare rates for you.

3. Lower Your DTI.

If the lender determines that your DTI is too high—that is, if your monthly debt payments represent a disproportionately high amount of your income—you can be rejected. Therefore, unless you can pay off a few substantial balances, bringing down your credit card debt could not significantly influence your debt-to-income ratio. However, you can benefit from paying off a loan in full or consolidating your obligation to pay only the bare minimum each month. 

4. Boost Your Credit Score

When your mortgage application is denied, looking at alternative lenders and types of loans is a good idea because the minimum credit score criteria for lenders can range from 500 to 700. It can take some time to prepare your credit for a house purchase. Pay off or settle past-due accounts and wait for the effect of recent negative marks to fade. 

Opening a secured credit card or credit-builder loan may be beneficial if you have no credit accounts. Access to someone else's credit history by being made an authorized user on their credit card account may also improve your credit scores. However, there are situations when mortgage lenders won't consider these accounts when establishing your loan eligibility.

5. Consider a Less Expensive Home or Save for a Larger Down Payment

You might also give it another shot with a smaller loan, either by putting more money down or by locating a less expensive place to buy. If you had your heart set on the home you had already found, both solutions would be better because they take time. Look into down payment assistance programmes to discover if you can get aid. Discuss the best course of action with your loan officer or broker if a relative wants to give you money. 

Conclusion

Consider increasing your down payment, finding better collateral, starting a savings account, or picking a perfect house if you've tried everything above and lenders are still rejecting your mortgage applications. Find a mortgage broker familiar with the criteria mortgage lenders use to assist you in matching their profile.