Unless you are cash rich, you would look to leverage on a housing loan to purchase a home. Getting an approval for a housing is never a certainty. There are many situations where home buyers can have their applications rejected outright by the mortgage lender. When that happens, a lender may inform you of the reasons why your application had been declined or not even give you service call to inform you of their decision.
These are some common reasons that housing loan request are declined by the mortgage lender.
1) Being a guarantor for a relative's loan
One of the most common reason that terms your personal financial position as over leveraged is by signing as a guarantor for another individual's loan. There are many reasons for this to happen. It could be that you nephew needs a guarantor for an education loan, your spouse included you as a guarantor for an auto loan, your dad needed you as a guarantor for a recent investment property loan, etc.
At the point of signing on, it is normal to think that these circumstances will not affect you in any way. But it can have a great effect on your loan applications in future, including your housing loan. Unless you have a high personal income, obtaining attractive housing loan terms can be frustrating.
A mortgage loan is a very significant personal financial commitment, the mortgage lender will be concerned with your personal financial leverage when assessing your application. And because you are a guarantor for other loans, those can be taken into consideration when calculating your personal debt ration. A higher ration can deem your personal financial leverage as undesirable.
2) Negligent on material information
Our personal finances are very private information. As wealth is a symbol of social status, many people may be a little embarrassed about revealing the full details of their current financial position, especially if they perceive their personal credit record as one that is adverse. However do note that a mortgage broker or a mortgage officer is there to help you obtain your desired mortgage. It is their job and they will be delighted to be able to acquire a deal for you that you will be happy with.
Because of the nature of their job scope, they have seen a number of applications and have experience on what to look out for in your application. So when you are probed on personal financial information, be open in sharing them so that an officer will know the best course of action to help you obtain an approval for your housing loan.
Do not think that some information requested is not important. Unless you are the mortgage underwriter, you will have little idea on the assessment criteria required. When possible issues are raised by your mortgage officer, you can get them resolved before processing your application. Working on adverse issues only after your housing loan has been declined may be too late.
3) Outstanding arrears and credit card bills
Because a housing loan is a secured loan, you may be complacent on thinking that it is one of the easiest forms of loans that you can get. You may even think that you personal credit record is of little importance since the mortgage lender should feel save since there is a valuable collateral involved.
That is not the case. Your personal credit record can have great effects on how flexible a mortgage lender is willing to be with you. This is especially so when you are a new customer to the lender. They have not dealt with you before and the only way to fairly judge your financial behavior is to assess your credit record. When it shows that your current auto loan and credit card bills are late by 3 months, it does not reflect nicely on how well you manage your finances. You can be penalized with an outright rejection or offered more unfavorable terms because of the additional risks put on the lender. Always ensure prompt payments on your personal credit facilities at least 6 months before your housing loan application.