Mortgage Loan Application Denied? Here’s What You Need to Do
Loan applications are often denied for a myriad of reasons. If your application has been rejected, you should not give up hope just yet. You may be able to improve your credit score and then reapply a second time to get approval for the mortgage you want.
You can also try applying with another lender who may be more lenient and flexible regarding their requirements. Below, we will discuss why mortgage applications are denied and what you can do about it.
Reasons a Lender May Reject Your Mortgage Application
If you cannot put down a sufficient down payment, you may not qualify. Most lenders will require a down payment of roughly 20% to qualify. A poor debt-to-income ratio may also cause you to be ineligible.
Your debt-to-income ratio cannot exceed 50%. Some lenders may require that your debt-to-income ratio not exceed the 36% mark. Your mortgage lender will consider your daily expenses along with your interest payments and principal.
It will also include mortgage insurance, homeowners premiums and association fees, and property taxes. Not having a credit history or poor credit score may also cause your application to be denied. Credit scores are calculated between 300 and 900, with the higher the score the more creditworthy the borrower is considered by lenders. Most standard mortgages will require a credit score of at least 620.
Unstable employment is yet another factor. You need to prove that you have a stable job that pays enough to make your monthly payments with minimal effort. An employment history of at least two years is usually required.
A low home appraisal may also be a reason for denial. If the home is valued lowered than the amount you are applying for, your mortgage will be denied. Also, if a property is deemed structurally unsound or dangerous, such issues will need to be remedied before your lender’s underwriter approves your mortgage.
Missing information may also be a serious problem, especially if your financial information is not fully presented to a lender.
You need to provide your lender with the required bank statements, W-2 forms, and tax returns to be considered for a mortgage. If you cannot prove your assets and income, your application will be denied.
What to Do If Your Mortgage Application Gets Denied?
You need to determine the actual reason or reasons why your application was denied. Try to pay down some of your debt to lower your income-to-debt ratio. You can also try to stabilize your income by getting a more stable job.
Try to obtain a higher-paying job, as some lenders may reject your application if your income is not high enough. You can also try applying with another lender who is more lenient in their requirements.
If all prospective lenders reject your application, you may need to assess your credit score. Ask for a copy of your credit history and go over it. Any errors or discrepancies should be reported as soon as possible, as they may be holding you back. Mortgage Loan Application Denied? Here’s What You Need to Do
Most lenders will also require that your credit balance remains below 35% of the credit available to qualify. As can be seen, a mortgage application is a serious business and should be treated as such if you want to get approved.
Steps to Take So That Your Mortgage Won’t Get Denied Again
You need to stabilize and augment your income by any means necessary. Any credit problems and errors also need to be rectified as soon as possible before you reapply. If you have any serious monthly obligations, like credit card debt, you should reduce them as soon as possible.
Paying down your outstanding debts and shopping around for a cheaper property, property type, or location are valid options to consider. You can also try and apply for a renovation loan. Sometimes, the issue is the property and not the applicant.
Try and increase your savings. Ask relatives, colleagues, and friends for gifts and other forms of aid. Look into down payment assistance programs if needed. Before applying for a mortgage, you need to compare and contrast rates and lenders. Mortgage Loan Application Denied? Here’s What You Need to Do
Work with a mortgage broker, as they usually do not charge anything for their services and will provide you with access to hidden resources and loan products that can greatly help your cause.
There is Help Available if Needed
Try to improve your credit score by paying off your debts and making timely payments. Report any errors on your credit report, and work with a financial planner or advisor to get your finances in order.
You can also look into other loan types with less demanding prerequisites, like private loans.
Homeownership is a well-trod path to growing wealth. While your mortgage application may have been denied, that does not mean your chances of owning a home are gone. As we have listed here, you have options you can use to get the home of your dreams, so never give up.
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Mortgage Loan Application Denied? Here’s What You Need to Do
