You’ve saved up for a deposit and worked with LIST WITH ELIZABETH® to find your perfect home, but you still need to avoid mortgage rejection. Maybe you were even pre-approved for a mortgage loan before you started the whole process. But now you need to solidify your mortgage to pull the whole deal together. Did you know that it isn’t always as simple as it sounds?
Sadly, more than a third — 35% — of first-time buyers say they have experienced mortgage rejection. As it turns out, there can be some unusual money mistakes that may cause a mortgage loan application to be declined. We got James Andrews, senior personal finance editor at money.co.uk, to explain how any red flags, however harmless, might concern lenders when reviewing your bank statements and application.
“When you apply for a mortgage, one of the things you need to do is hand over a few months’ worth of bank statements,” said Andrews. “The idea is for your provider to check you can actually afford your mortgage. But they don’t just look at the total at the bottom, they also look for red flags.”
Andrews said that would-be borrowers need to be careful; it’s possible for a perfectly innocent transaction to be mis-read by a lender and get your application rejected.
“It pays to know what they’re looking out for to make sure you don’t accidentally block yourself from a deal you’d otherwise qualify for.”
Avoid Mortgage Rejection By Understanding the Main Rejection Reasons
Joke references when transferring money
Sometimes on online cash transfer apps, like Venmo for example, it seems funny to include funny notes when transferring money, whether it’s for a split meal or a bigger amount, like a shared vacation. But what can seem a silly joke between friends actually generates questions for lenders and adds time to the lengthy mortgage application process.
“Ask your friends to tag any payments with a reference that reflects what the transfer was actually for, such as ‘pizza’ or ‘summer holiday’,” says Andrews.
Sending someone birthday money or making a big splurge purchase
“If you’re in the middle of a mortgage application, lending or gifting even a small amount of money could raise questions from the lender. The same goes for bigger purchases you might be tempted by,” he says.
Lenders want to see a nice buffer built up in your bank account, so avoid any non-essential spending during the mortgage application process. Seeing less cash than normal in your account can impact affordability calculations.
Betting or gambling transactions
Small bets likely don’t matter, but lenders do take gambling transactions into account, assessing whether you’re likely to be able to comfortably pay your mortgage on time every month.
“If your gambling causes a problem with your finances, then it can also cause a problem with your mortgage application,” he says.
Getting a new job – even if it pays more
While getting a new, and better-paying job is usually something to celebrate, it might actually be a red flag on lenders’ acceptance criteria, since most lenders will only offer a mortgage, or at least give better terms, if you have been in your job for a while.
“Some lenders think it is riskier to give a mortgage to someone still in their probationary period,” says Andrews. “However, a higher salary can lessen the impact because it increases what lenders think you can afford to borrow. You will need to prove your new salary, so ask your employer to confirm it in writing.”
Double-check to make sure your browser doesn’t autocorrect any answers, or that you’ve entered all of the data on your application correctly. Inadvertently claiming you have more children than you do, or getting your income wrong, could mean your application is rejected.
“Also, double-check whether you need to enter your annual salary, or your monthly salary as this is a really common mistake. You could end up telling your lender you earn $3,000 a year, when you actually mean a month,” says Andrews.
On the subject of salary, he says don’t include regular bonuses or commissions in your basic salary. Enter these separately so your lender will be able to see the full picture and you can avoid mortgage rejection.
Not having a paper trail for your deposit
“If you received some or all of your deposit as a gift, ensure you have a paper trail so that the lender can follow its journey into your possession,” says Andrews.
Failing to have a proper paper trail not only may cause delays in your application, if you can’t prove where the money came from, you may not be able to be included in your application.
As you can see, having a mortgage loan approved isn’t just about having a good credit score and an ample amount of funds. These red flags show that having all of your application information properly recorded could be just as important to help you avoid mortgage rejection!