Common Financial Mistakes that Lead to Having Your Mortgage Denied

Lenders prefer consistency when it comes to job and income information, so switching jobs during your mortgage application could cause them to question whether you will be able to afford your home.

Before embarking on the mortgage application process, it is advisable to avoid opening new credit cards or making large cash deposits as this can negatively impact your debt-to-income ratio and result in loan denial.

Top 5 Financial Mistakes That Might Cause Your Mortgage to be Denied

1. You Don’t Have a Good Credit Score

Lenders will evaluate your credit history, including your debt-to-income ratio when making decisions about mortgage approvals. This ratio is calculated by adding up all monthly debt payments and dividing by gross monthly income; to maintain an excellent score it is crucial that you manage your credit responsibly by paying bills on time and limiting how much of it you use.

Also, try not to make sudden withdrawals or deposits from your bank accounts as these can raise red flags for lenders, who will want to know where the funds come from and their relation to your current finances. Lenders generally prefer borrowers with stable lives and consistent finances as borrowers who provide secure collateral.

2. You’re Unprepared for the Mortgage Process

Mortgage processes can be lengthy and exhausting, but adhering to your financial plan and not incurring new debt or making large purchases before closing is key. Also, avoid changing jobs during this process without justifiable cause (ie promotion/increase in salary, etc).

Keep your bank accounts and assets stable during this time as well. Lenders prefer regular deposits and withdrawals from bank accounts, as well as clear documentation of your sources of income. Any unexplained deposits or withdrawals could raise red flags and cause delays or derail your mortgage approval - to prevent this, work closely with your lender and be responsive to their requests.

3. You’re Making Late Payments

Late mortgage payments can have a detrimental effect on your credit score and could prevent you from qualifying for future mortgage loans. While it's best to keep up with payments when possible, sometimes life throws curveballs at us that make this task challenging.

Most lenders give borrowers 15 days after the due date to pay their mortgage before it's considered late and reports to credit bureaus are sent. Once that grace period has ended, late mortgage payments could incur late fees and could negatively impact credit bureaus.

If you find yourself late with mortgage payments, it may be in your best interests to request that your lender remove it from your report. Writing up this request helps keep a record of it all.

4. You’re Switching Banks

One of the more frequent errors that could cause your mortgage application to be denied is switching banks too quickly. If there are still withdrawals pending on your old account when switching banks, your payments won't go through and additional fees and penalties could apply.

Switching banks may seem daunting, but it can often improve your finances. Before choosing one to suit your price, technology, and customer service requirements it's essential that all automatic deposits and payments have been transferred over to the new account before closing off your old one - this will prevent checks from failing and creating issues with mortgage applications.

5. You’re Making Unusual Deposits

Lenders want to ensure you have enough cash in your bank account to cover a down payment, closing costs, and at least three months' mortgage payments. If they see an unaccounted-for deposit that's too large to be explained away by assets or side income sources that don't fit this mold, lenders might assume you used ineligible assets or side income as the source.

In such an instance, receipts, bills of sale (if the money came from selling something), canceled checks, and pay stubs as proof are needed to gain the trust of that source. They will also look out for unaccounted-for income sources such as bonuses from sources like IRS tax refunds or business earnings which all need to be declared when applying for a mortgage loan application.

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