It’s not uncommon for borrowers to get declined in your loan applications and it’s important to know the reasons why as well as how best to respond. Let’s take a closer look at what happens, who gets turned down, and more importantly, we can help you avoid getting rejected in the first place.
The Most Common Reason Why You are Turned Down on Application Loans
The most common reason people fail their mortgage or auto loans is that they don’t do enough research. Of course, there are exceptions in this case but, almost all of the time, it boils down to no one doing any due diligence whatsoever. This often results in the borrower accepting an offer which isn’t ideal.
This might sound like bad advice but research shows that applicants taking out mortgages with higher interest rates end up paying more money over the term than those with lower interest rates. And if you’re already getting a high rate from your bank account then adding even more on could make a big difference. If you have low or moderate credit scores, then having a lower interest rate may only result in your lender increasing your monthly payments while simultaneously making it difficult to repay. This makes sense because lenders want to recoup as much profit possible off of your repayment history as effectively possible. What’s worse is that some lenders may set an aggressive limit on the size of your loan amount or charge fees for late application and missed payment which can be very detrimental to your ability to pay back the principal.
If you can afford the risk/reward ratio and the risk is minimal, these things shouldn’t matter so why bother working it out? With regards to our personal finance blog, I’ve been told by many successful individuals in my circle that they never looked into getting preapproved to save thousands in fees and interest. While there is a lot of truth to that statement especially when compared to other factors impacting the approval process such as your credit score, there are also some things that are beyond anyone’s control which include changing jobs and moving house, moving abroad etc. In the long run it’s often for the better as your job will give you a better income and your housing costs will go down and you’ll start growing a net worth faster. However, having the right balance of savings vs debt and the right mindset to keep pushing towards your financial goals is critical.
The next factor in regards to mortgage and auto lending that plays heavily into being denied a loan is whether or not you’re considered seriously underserved. As tempting as it is, not applying during competitive periods can actually hurt more prospective homebuyers. A good example for this is the historically low inventory that has hit the American housing market since last year. According to The Mortgage Lender’s latest report,
“Home builders reported a 13% drop in building starts over the past 12 months. But new listings climbed 14% to 1,924, the highest level in seven years.”
With this kind of volatility in the market comes increased risk which can lead to increased demand from potential buyers for a property like yours. Due to a number of factors, including rising inflation rates and rising interest rates, buyers are becoming less likely to make the sacrifice in order to buy a home. People are opting instead to rent rather than paying full price for a rental. These two trends mean that people aren’t able to purchase homes as quickly as normal and as a result, banks seem to be struggling to secure the best deals every day.
With current economic conditions and supply chain issues, it’s clear that competition amongst multiple lenders has resulted in less volume and therefore less product available for sale for sale right now. This means that in some cases less home sellers are going to apply for loans on behalf of their clients which can lead to fewer people applying for the same mortgage. Obviously, this wouldn’t be an issue if everyone was able to obtain access to affordable loans but with prices continuing to rise, not everyone has the resources to make ends meet and if the cost of borrowing continues to increase too, lenders will be forced to decrease their incentive to lend. This is the unfortunate reality with all things related to commercial real estate finance which is why obtaining approval from various lenders with varied levels of funding and risk levels can sometimes prove difficult – especially for borrowers who rely upon private equity for financing.
How Do Banks Respond To Your Refusal to Apply For a Loan?
The above are just three of many factors that often dictate your refusal to obtain a mortgage. Sometimes the lack of sufficient information leads to a poor assessment of a situation or poor credit score which affects your chances of receiving a loan. Or perhaps you simply have bad credit? Either way, it’s vital to understand and learn about the different types of loans and the risks involved with each type before submitting your application to any lender. Once you have a solid understanding of the potential problems from these areas, then you can work on revising your loan application to ensure it does not include any errors and provide the best possible answer to the questions asked. After all, without proper due diligence there won’t be any funds available to you in a timely manner and if you find yourself stuck in a cycle of rejection, consider speaking to a qualified loan officer such as Zest Money today. They will be happy to discuss your options and offer solutions for the causes of your rejection. Contact us today to speak with someone who knows what they’re talking about!