7 Barriers to Getting a Mortgage
Below are some of the typical reasons for having your mortgage application declined and some tips on how we fix the problem! As a mortgage broker this is our daily business helping improve your chances of approval.
Adverse credit history: This one can take some time to fix but it starts with contacting a credit reporting agency and getting a copy of your credit report. Having lots of debt and open lines of credit can also affect it, so close unnecessary facilities.
If you have past defaults, collections, and unpaid debts, pay them asap! Whilst it might be easier to pay them off via a small amount each week, you won’t get any mortgage with outstanding debts lingering unpaid.
Your credit history could mean using a non-bank lender for your mortgage rather than a bank. But the idea is always to refinance with a bank once your position looks better.
Too much debt: This is the most common reason for being declined a mortgage or not getting the loan amount needed to buy a house. The more debt you have, the lower your borrowing power is with the banks. Some ways we address this problem includes consolidating the debt to lower payments, closing unused facilities, lowering facility limits eg. Lowering a credit card limit where you may have a 10k limit and 2k balance owing, using some of your cash deposit to clear debt, selling assets and seeking family help to clear your debt.
If you are planning on buying your first home soon, think twice about buying that fancy car on HP!
No record of genuine savings: Banks like to see you have saved at least 5% of the purchase price yourself. This can include KiwiSaver. They want to see you’ve put in some of the hard yards in building a deposit and savings history. However, if you have been given money from family to cover a 20% deposit, then it becomes less of a problem.
New in your job and self-employment: Now we are not saying you can’t be self-employed, but if you are newly self-employed, you can expect some barriers to getting a mortgage. Normally banks will want to see two full years of business financials (occasionally there can be exceptions). If you are self-employed, make sure you have your financials up to date and use an accounting program that helps with getting year-to-date profit and loss data.
If you are new in your job and on a 90-day trial period, you may have to wait till you have worked though that. Check your contract as sometimes there can be a probation period after the trial period. You can potentially negotiate with your employer to have it waived, which will help with a mortgage application. A lengthy job history prior to starting a new job can also help mitigate the situation.
Adverse account conduct and late payments: This can be an annoying reason for a mortgage decline, but it can be easily fixed, though it could take 3 months to get a good history built up.
If you are not running your accounts appropriately with late payment fees, missed payments, unarranged overdrafts, bounced DD’s and AP’s, the banks will pick up on it and could mean a decline of your mortgage. Check the timing of money in and money out of your account. Simplify your account set up and change the timing of payments to help avoid these glitches in your money management.
Your age: Your age alone doesn’t necessarily mean an automatic decline, but it can affect how much you can borrow. That’s because the banks may assess your loan application based on a shorter term than the maximum of 30 years. But assessment can vary from bank to bank so it pays to discuss your plans and goals with us so we can help with appropriate action.
Type of property: One key bit of advice is just because you are pre-approved for a mortgage, doesn’t mean you can place unconditional offers on houses willy nilly! The banks must be happy with the property you are looking to buy. So, they will look closely at the condition, the legal description, sometimes asking for a builder’s report, and want to see the disclosures for any issues that may be declared with the property. Typical issues that can raise a red flag with the bank is defective titles and unconsented work. As mortgage brokers part of our job is to anticipate in advance, potential roadblocks we may have with any given property you are keen on.
As your expert Wellington and Kapiti mortgage brokers we love helping overcome these barriers to getting a mortgage, so reach out today for help.