Were you recently denied a mortgage loan, and you aren’t sure why? The mortgage application process can be long and stressful, and not getting approved for a loan like you had hoped for can be upsetting. After all, with no mortgage, you can’t afford to buy a home.
However, although being denied by a lender can seem like the end of the world, it is important to stay motivated and continue working through the process. Meet and apply with other lenders, as different lenders will have some different eligibility requirements.
Additionally, understanding possible reasons as to why you may have been denied by the lender will allow you to address those issues now and apply for a mortgage possibly later in the year. Because you are denied a mortgage once doesn’t mean you will never be approved for one. Instead, you may just have to improve your personal finance and spending habits.
Reasons Why Borrowers Are Denied a Mortgage
- Loan-to-Value (LTV) Limit. The Central Bank of Ireland’s LTV mortgage measure restricts the mortgage loan that you can be approved for with respect to your minimum deposit amount. Therefore, lenders will not approve you for a mortgage if you do not have a 10% minimum deposit as a first-time buyer or 20% minimum deposit as a second or subsequent buyer.
- Loan-to-Income (LTI) Limit. The Central Bank of Ireland also restricts the loan amount you can be approved for with the LTI Limit. If the amount you are asking to borrow from the lender is greater than 3.5 times your gross annual income, you can be denied the mortgage.
- Too much outstanding debt. Multiple current loans and outstanding debt make you a risky borrower. Lenders are not always willing to take on such risk, so too many financial commitments can lead to you being denied the mortgage.
- Poor saving habits. Lenders want to see that you have a strong history of saving. Saving consistently shows them that you know how to manage your money, while little to no saving history tells them you have a strong potential to miss repayments.
- Your job. You can be denied a mortgage if you have contractual work, are temporarily employed, or recently started a new job. This is because your ability to make repayments is technically temporary with contractual and non-permanent employment since you cannot guarantee employment in a few months or years.
- Lastly, your credit history. Poor credit history from missing repayments on your credit cards, loans, and/or other bills makes you a risky client to take on in the eyes of the lender. Lenders will likely reject your application if you have a poor credit history.