Top Ways to Avoid Being Denied Your Mortgage

Imagine you found a house of your dream located at the ideal spot with a perfect view. You got to the bank to get a mortgage loan to purchase your new house but the bank denies you the loan because of your bad credit history or income source

What is a Mortgage Loan?

A mortgage is a loan taken from a bank and other financial institution that allows a borrower purchase a home. The collateral for the mortgage is the home itself, meaning that if the borrower isn’t able to repay monthly payments to the lender or defaults on the loan, the lender can sell the home and recover its money. This process is known as foreclosure.

Craig Berry, the Mortgage Reports Contributor claims that,

A Declined Mortgage Shouldn’t End Your Homeownership Goals. Mortgage rates are now at three-year lows, and renting households are discovering it may be cheaper per month to buy a home.

Ask Why Your Loan Was Turned Down

Ask your bank why they turned down your loan request. Lending regulations are on the consumer’s side when it comes to mortgage denials. They must send you a formal denial letter if your mortgage application has been turned down, typically known as a Statement of Denial or Adverse Action Notice.

If you aren’t clear about the legal terminology used in the letter and need more clarification, you can contact your bank and ask them specifically why was your mortgage application turned down?

Be wary about “value or type of collateral not sufficient,” it means there was an issue with the appraisal or the home’s value was lower than expected.

Common reasons for credit denial include:

Poor Credit History

Everything bad starts with a poor credit history. Lenders always check your credit reports such as previous loans, payment history, and everything else about your finance. A high credit score becomes essential to get a loan because the bank trusts that you will repay them back.

Unstable Employment

Your income source determines your ability to pay back. Unstable employment history is a bad mark on their check-list. A stable income source is important.

Too much Debt

Your debt-to-income (DTI) ratios are too high. Too much debt raises your debt-to-income ratio which is a bad mark on the bank’s checklist.

Are There Other Loan Options Available?

Don’t be disappointed when your mortgage application is turned down. Understand why your application was turned down so you can figure out the best course of action moving forward. This can help you ascertain if you should apply elsewhere or look for alternative loan options from the same lender.

The lender isn’t likely to offer you different loan options after turning down your application for conventional loans because

• The lender does not offer alternative programs
• Your loan officer has little experience with other loan types
• The underwriter missed a key piece of information

Although your bad credit score or debt-t-income ratio may disqualify you for one loan, it doesn’t necessarily disqualify you for every other loan. For example, if your application was denied due to your credit score being too low for a conventional loan, perhaps you’d qualify for an FHA loan instead. They have less flexibility for higher debt-to-income ratios than their FHA counterpart.

Raise Your Credit Score or Appraised Home Value

Why do you get your credit score right? You can achieve those few more points on your credit score by settling your previous debts but it may take a lot of time. If it’s a matter of just a few more points on your credit scores, your lender may be able to advise you on how to increase your credit scores with the help of a rapid rescore.

Here is how you can raise a credit score by more than 100 points in days, not months.

• Non-occupied co-signers may be another option. These are individuals — usually family members — who help you qualify for the mortgage but do not plan to live in the house.
• The lender considers the co-applicant’s income along with yours. This reduces your debt-to-income ratio and improves the chances that you will be approved.
• If you were turned down to the appraised value, it may be worth looking into using another lender. Different lenders often use different appraisers.
• Because appraisals are considered opinions of value, one appraiser may come up with a higher value than determined for your first mortgage application.

Why Not Try Again Now?

If you think you’ve exhausted your options for qualifying for a mortgage loan, don’t let that stop you from reapplying for the loan.

Craig Berry, the Mortgage Reports Contributor claims that,

Mortgage rates are now at three-year lows, and renting households are discovering it may be cheaper per month to buy a home. With rates in the mid-3s, home buyers are applying at heightened levels. Most of them will be approved.

Applicants who didn’t qualify the previous year may qualify this year due to new loan programs. The HomeReadyTM mortgage program requires just 3% down, and applicants can use the income from non-borrowing household members to qualify. FHA mortgage minimum credit scores are dropping at lenders nationwide. More applicants are accepted into this 3.5% down program.

How can you qualify for a mortgage loan program?

Ensure You Have a Verifiable Income Source

The lender reviews your stable source of income. Applicants with an unstable employment history often disqualify for mortgage loan programs. Job-hopping and long periods where you have been out of work don’t look good to a mortgage lender.

if you have two years of steady employment or at least two years of self-verifiable income, this can help your chances of getting mortgage better. If you’ve any other income sources, other than employment such as an inheritance, make sure to bring this into the lender’s attention.

Improve Credit History

If you have a history of late payments, have had accounts sent to the collection agency, or simply have never built up your credit, it can often get you disqualified for most loan programs. The best thing you can do is wait to apply for a mortgage until you have paid down your credits including credit card debt.

Improve Your Debt to Income Ratio

The lenders take all of your monthly payments into account including your theoretical mortgage and divide it by your monthly gross income. If they see that you a lot to pay in terms of credit cards, student debt, car payments, etc. this will increase your ratio. The debt-to-income ratio should be below 36% to attract the lender’s attention.

Mark Grey Law PLC is the best attorney law firm in Ankeny. We run a small private firm with few of the great Ankeny lawyers. Get in touch with us to find out more about ways to improve your chances of getting a mortgage loan approved by the said bank.