What To Do When Your Mortgage Application Is Rejected

After the 2008 financial crisis, new regulations were brought in across the world to prevent the same mistakes from happening again. That crisis was largely caused by banks lending out money to as many people as possible. People who truly couldn’t afford big mortgage loans got them, struggled to repay, and the banks ended up losing loads of money. 

Other things came into play, but let’s not get into that! The point is, mortgages are harder to get these days, making property investment more of a challenge. It’s increasingly common to have your mortgage application rejected, so what do you do when this happens? 

Identify the reasons for the rejection

To start, why was your application rejected? For all you know, the bank could’ve stopped you from making one of your biggest financial mistakes ever. You may have been asking for a massive loan that your budget barely lets you afford. Banks don’t approve mortgages like these anymore – there must be clear evidence that you can financially afford the loan, which is why there’s usually a ballpark figure for what you can borrow based on your annual earnings. 

Another common issue is your credit score. A low credit score usually gets rejected as it shows the bank you’re probably not great with your money, specifically when it comes to paying things back on time. Improve your credit score and your application might be approved next time. 

Identify the reasons for the rejection and you’ll know what to work on. 

Apply for a smaller loan

Assuming your credit score is now in order, mortgages can still be rejected because you’re asking for too much. The loan amount you need is way too high. Apply for a smaller loan and you may see a better outcome. 

There are two ways to do this: 

  • Find a cheaper house to buy
  • Save more money for a larger downpayment

The choice is yours – having a large downpayment is also beneficial when it comes to repaying the mortgage. You’ll have less money to pay in the long run.

Seek other financing options

Sometimes, banks are really difficult and they won’t hand out mortgages to 90% of customers. They’re being overly cautious, but it’s annoying as you think you’re more than capable of paying back the money. Especially if you want to invest in property and have a great strategy in mind. 

In scenarios like this, you could seek out alternative finance options – like hard money lenders. These lenders are specifically geared towards real estate investments and don’t take things like credit scores or earnings into account as strongly. Instead, the loan is secure against your property and has a much shorter term. The idea is to use this loan to buy your house, and then refinance it through a bank to get a mortgage. As a result, you use this mortgage to repay the hard money lender, and you’re back to making normal mortgage repayments. 

It’s a good trick for people struggling to get a mortgage, or it’s a fine idea if you want a faster way of financing your real estate purchases. 

So, there you have it; what to do when your mortgage application is rejected. In reality, the first point is the most important. Learn why you were rejected and work on the specific things mentioned by the bank. This will put you in a better position next time you apply.