It’s harder to get a loan today than it was only a few years ago. The financial crash has caused the pendulum to swing in the opposite direction, from rampant lending to hording cash. Unfortunately, this makes it more difficult to buy a home than it has been in quite some time.
Thankfully, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires banks to justify their decisions. Remember, not only individuals and small time business owners were effected by the financial crisis, but even the upscale Long Island elevator companies. You can take advantage of this to find out why you are being turned down, and what you can do about it. The following four reasons are some of the most common.
1. Credit Issues
Banks use your credit score to determine how high of a risk they are taking by offering you a loan. If your credit score is bad, they take this as an indication that you might not be able to pay off the loan, and that they will be stuck with the home which they could end up selling for a loss.
Unfortunately, your credit score isn’t always fair, and there are other reasons credit can affect your eligibility. The most obvious case is simply not having enough credit history. If you’re young or haven’t had much experience paying off debts or dealing with credit, few banks will give you the benefit of the doubt. They’ll assume that you’re too high a risk.
You can also take a hit for credit inquiries. Credit inquiries tell the bank that you are applying for credit, and a large number of credit inquiries tells the bank that you are frantically trying to get a hold on as much cash as you can because you’re in a difficult financial situation. This assumption can be unfair, because you get a credit inquiry any time you apply for a credit card, even if you are just shopping around or if the credit card company turns you down.
The best way to fix your credit is to start making regular payments to a credit card. If you buy only what you can afford, but put it on your credit card and pay it off every month, this can do a lot to improve your rating.
As if the emotional problems with divorce weren’t enough, it is also a common reason for getting turned down on a loan. Banks assume that a divorce will negatively impact your financial situation in ways that you might not yet be familiar with. There isn’t much you can do about this one other than wait it out, but if your partner was the one with the bad credit it’s worth pointing this out to your lender.
3. Losing Your Job
Obviously, losing you job affects your financial situation. If you’ve recently had a change in employment, banks might be weary to deal with you because your employment history isn’t strong enough for them to rely on. Even if you have found a new job, they will usually prefer to wait until you’ve had more history with the new employer. Again, this one is usually best solved by waiting, although if you can present evidence that this job will be solid it’s worth discussing it with your bank.
4. Bad Health
Health problems can affect your ability to work. Medical costs can get very expensive, and banks also need to consider the possibility that you won’t be alive by the time you should have paid off all of your debt. Discuss options with your bank and get in touch with other lenders in order to find out what you can do to improve your chances of getting approved for a loan.
While some of these problems may seem insurmountable, most of them can be solved with time. In cases where simply waiting it out won’t help the problem, you can often improve your chances of approval if you offer a large enough deposit. It’s in your best interests to start saving for a deposit immediately and doing everything you can to demonstrate fiscal responsibility. This should make it easier to apply for a mortgage in the future.