Applying for a mortgage can be one of the most exciting moments of your life, especially if you have spent months saving for that all-important deposit and found the house of your dreams. However, many people – especially first-time homebuyers – may be unaware there are several small and seemingly insignificant things which can lead to your mortgage application being rejected.
A recent study by consumer group Which? revealed that four in 10 (41%) of 18 to 24-year-olds have had a mortgage application rejected before successfully buying their first home. To help people understand what they need to look out for, Jonathan Bone, Head of Mortgages at Better.co.uk, has shared eight considerations eager homeowners need to think about before making an application.
Joke references when transferring money
We’ve all been in that situation where we have to transfer a friend or family member money that you owe them. Whether it’s for a pizza at the end of a cosy evening in or a larger amount of money, it’s important to think about the reference you give for the transaction.
While you might think it would be funny to make an inappropriate joke as to what the person is receiving money for, it can actually lead to your mortgage application being rejected by lenders.
As part of a mortgage application process, you usually have to provide three months worth of bank statements for the lender to review, so if you have ‘questionable’ spending on these, an application may automatically be declined with no option to appeal.
Small betting or gambling transactions
Another thing to think about when applying for a mortgage is any betting or gambling transactions that you may have made recently.
While buying a lottery ticket every so often is unlikely to see your application rejected completely, it’s important to be careful about making gambling bets regularly.
A lender will take each gambling transaction into account, so if it is causing problems with your finances (such as habitual spending), it may raise concern that you are unreliable at making repayments.
Getting a new job even if it pays more
Getting a new job that pays more is something that we usually celebrate, but if it happens during your mortgage application process, then it can actually cause problems in terms of getting accepted.
Most lenders want proof that you have been working in a job that has provided you with a stable income for a while.
While a higher income might seem like a good thing and improve your affordability, someone who is still in their probationary period at work may seem riskier to some lenders – it completely depends on certain lenders acceptance criteria.
Being self-employed without any proof of income
Being self-employed can be one of the trickiest circumstances to be in when getting a mortgage because it can be hard to prove your income stability to a lender as you don’t get regular payslips like you would from an employer.
However, it doesn’t mean you can’t get a mortgage if you are self-employed; you just need to be able to provide proof of a stable income. To do this, make sure you have evidence of regular money coming in that will prove you can make repayments on time, as well as any taxes that you have paid.
Ideally, if you can provide this over a two-year period or more, a lender can get a better idea of how your salary fluctuates month to month and whether you are a risk to them or not.
Not being on the electoral roll
Something that a lot of people may not consider an issue when they are applying for a mortgage is not being part of the electoral roll at your current address.
Lenders often use the electoral roll to ensure that your address that you provided matches official records so they can verify that it is correct. Not only that, but not being part of the electoral role can also lower your credit score, which can flag lenders as being a risk.
If you aren’t part of the electoral roll and are planning on applying for a mortgage, make sure to do so as soon as possible. It’s easy to do online and is also completely free.
Admin errors
A completely avoidable reason why some mortgage applications get rejected can be something as simple as making admin errors when filling out paperwork.
This could be something like filling out your address wrong or making spelling errors. It is therefore important that when you are filling out your mortgage application, you take your time and double check that everything has been completed correctly before submitting any forms to the lender.
Applying for too much credit at once
If you are planning on taking out a mortgage, make sure you consider how many credit applications you are making at once, such as a loan on a car or applying for a credit card.
Taking out lots of loans at once can flag you as a problem to a lender and may make them question whether you will be able to make repayments on time.
Not having a paper trail of your deposit
Finally, another reason you may be rejected for a mortgage application is not having a paper trail for your deposit.
For example, if you received money as a gift, you have to be able to prove where this money has come from, so make sure you have a paper trail showing the money leaving and entering accounts, so the lender can follow it to your accounts.
Failing to have this can cause delays in your application, and if you can’t prove where the money came from, it may not be able to be included within your application.