It takes a huge amount of work to get your mortgage loan in top shape: hours of paperwork, weeks of phone tag, and endless meetings. After all that planning and preparation, getting declined for your mortgage loan can feel truly devastating. But, all is not lost! In this guide, we discuss the most common reasons that lenders deny your loan. With a little research, you can use this information to secure your dream home in the future!
It's amazing how much information lenders can pull from just one number! Your credit score is one of the most important variables that lenders use when weighing your loan approval. A FICO score of less than 620 is seen as undesirable, so consider that when looking over your annual credit score. Also, bad marks on your credit report can turn lenders away. Events like foreclosures and bankruptcy may drop your score temporarily.
Income to Debt Ratio
While your past is important to lenders, your present is just as important! Lenders assess whether you can afford your mortgage using the income to debt ratio. This determines whether your current income can support your upcoming investment. Proper documentation can help you strengthen your case, so dig out those old tax returns and financial records.
How much can you put down for your initial investment? The larger the down payment, the more comfortable the lender feels. Usually, homeowners put down anywhere from 5 to 25 percent of the total cost of the home. Anything less can make lenders nervous. However, some federally-backed mortgages require no down payment at all if that's a concern. You may also look into options like cash advances and title loans from CashMax to create a bigger down payment.
While you may be scouring your application for potential problems, the real issue may not be you at all! If the property value is too low, the lender may not approve your loan. Consider applying to a variety of lenders to solve this issue, or try an appraisal rebuttal to increase the appraised value.
You'll need to prove a history of employment before lenders will hand over the money. They want to ensure that you'll have a steady source of income to help pay off your loan. Usually, two years of consistent employment is sufficient. Pay stubs and tax returns can help strengthen your case. If your employment history is spotty, then you may need extra time on the job.
The Next Steps
Now that you know why do mortgage loans get declined, you're well-prepared to apply for that dream home. So, what's next? Take a little time to go over your credit score, income, and employment history to make sure that you fulfill the minimums discussed in this piece. Then, take a look at your property to ensure that it meets the criteria. If you feel confident about your application, submit it! Just because you were denied once doesn't mean you're done. Do your best and you'll be ready to move into your new house in no time!