Most home buyers borrow money in the form of a mortgage to pay for the majority of the cost of a home. When a borrower seeks a mortgage from a lender, a loan professional called an underwriter assesses the likelihood that the borrower will fail to pay back the mortgage. If an underwriter feels the borrower presents too great a risk, he may deny a mortgage. Many underlying issues can be a sign that a borrower may not be able to pay a mortgage, which can lead to mortgage denial.
Debt Payment History
A lender may deny a mortgage if the borrower has a poor track record of paying other debts. Underwriters check the prospective borrower's credit report, which includes information such as missed or late credit card payments and delinquent payments on other types of debt. Past bankruptcies and foreclosures are a warning sign to lenders that a borrower might not pay back his debts. Underwriters also check an applicant's credit score, which is a numerical rating of the borrower's creditworthiness based on information in his credit report. A low score suggests a borrower is less likely to pay back debts. In addition, borrowers who have little or no credit history may be denied because it is risky for lenders to give out large sums of money to borrowers that don't have a proven track record of paying back debt.
The total amount of debt a borrower carries can also impact whether a mortgage is denied. Lenders are wary of giving out mortgages to borrowers who already have a large amount of debt. If a borrower is barely able to pay off the debts he currently has, taking on a mortgage could cause him to miss debt payments.
Mortgages are long-term debts a borrower usually pays off over the course of 15 or 30 years. Mortgage lenders typically require a borrower to have a steady source of income. If a potential borrower has an unstable employment history and irregular income, his request for a mortgage may be denied. Similarly, a mortgage could be denied if the borrower's income level is not high enough to reasonably pay off a mortgage given his current level of debt and other financial obligations.
A down payment is a sum of money a home buyer pays toward the cost of a home to reduce the amount of money he must borrow. Down payments reduce the risk of lending, because a borrower who makes a down payment has a personal investment in the home he would lose if he stopped paying his mortgage. Mortgage lenders often require that borrowers make down payments and may prefer down payments of up to 20 percent of the cost of a home, according to a December 2009 article in "U.S. News and World Report." Borrowers with little money to commit to a down payment may have difficulty securing a mortgage.