The Bank Rejected My Mortgage — Why? 4 Common Reasons

By law, banks are not required to disclose the reason for a mortgage rejection. Nevertheless, it’s important to understand the possible motives of the bank to increase the chances of approval for a new application. Here’s why you might be denied and what to do about it.

Reason 1. “Bad” Credit History

A credit history contains all information about the loans a person has ever repaid. A bank may deny a mortgage if the potential borrower was previously an undisciplined payer. For example:

• Frequently making payments a few days late

• Making a single payment with significant delay

Bank algorithms vary. Some institutions are lenient if a client was 3 days late on payments for other loans, while others may consider it a reason for rejection. Regardless, the likelihood of approval is low for a client with long-term past delinquencies.

Reason 2. Low Income

Two factors matter here:

• How much the person earns

• How much money remains after existing payments

It’s important that the borrower always has funds for groceries, utilities, taxes, and supporting children or other non-working family members. Banks take this into account when reviewing applications.

Reason 3. Too Many Other Debts

A borrower may have multiple debts: unpaid fines, utility bills, alimony, or other loans. Even with a high income, there might not be enough leftover to cover a mortgage.

Banks evaluate debt-to-income ratio: how much debt the borrower has compared to their income, and whether there will be enough left for living expenses and repayment of the new loan. Generally, this ratio should not exceed 60%.

Important:

• If you are a co-borrower on someone else’s loan, the bank counts that debt too, even if you don’t pay it yourself.

• For guarantors, it matters only when they repay the loan instead of the borrower.

Reason 4. Errors in Documents

There are three common document-related issues:

1. False information: The borrower overstated income. Banks verify all information, so false claims will be discovered.

2. Typos: Errors like a wrong letter in a surname or a digit in the address are treated as inaccurate information.

3. Expired documents: For instance, a passport that was not renewed in time.

What to Do After a Rejection?

Analyze the possible reason and try to fix it. Here’s how:

1. Check your credit history. If bad entries are errors, contact the bureau with proof of reliability. If past mistakes exist, improve your credit by responsibly using a credit card and repaying on time to show reliability.

2. Reduce the monthly payment. Ask for a smaller loan, choose less expensive property, increase the down payment, or extend the mortgage term.

3. Check for outstanding debts. Look for unpaid fines, ongoing legal cases, or bankruptcy issues.

4. Adjust the debt-to-income ratio. Methods include:

   • Reporting additional income (e.g., rental income)

   • Repaying debts or refinancing existing loans

   • Closing unused credit cards

   • Bringing in a co-borrower whose income will be counted

Important: Ask co-borrowers or guarantors to check their credit history as well. Bad entries may lead to another rejection.

When to Submit a New Application?

Timing is individual. First, understand the cause of rejection and address it. Then, submit a new application. Ensure all information is carefully verified.