Not all mortgages end in final approval and the purchase of a home. Some mortgages never get to the final signing of papers and handing over of keys. If you have been denied for a home loan the following articles have some great tips on what to do next.
Thoroughly Understand the Reason for Denial
There are many reasons why a mortgage falls through. Knowing your particular financial status and exactly why it was your loan was denied (or could be denied) will help you to overcome any hurdles in the future.
One thing to know about in great detail is your credit score.
One of the most widely common reasons mortgage loans are denied come down to the actual credit pull. Do you know your credit scores and why they are at the number they are? You can receive a free credit report once a year from the government sight. This will give you the score from each of the three credit bureaus and allow you to print out your credit report annually.
What contributes to your credit score number? Payment history accounts for 35% of your score: this is your account payment information as well as delinquencies in the public record. How much you owe on your current credit accounts for 30% of your credit score. For example, the amount of available credit you are using on a credit card is heavily weighed. If you have accounts close to the maximum credit this lowers your score.
You should always be aware of your exact credit score number and the exact details that got you to that number. Don’t just look at the main numbers of your credit report, look at the fine itemized details on the report. Look it over for any reporting errors. It is not uncommon for someone to have an error on their credit report. In fact, one in four Americans have errors on their credit report. If you find an error in your report you will want to have it corrected as soon as possible so it does not negatively affect you.
Here is what you can do to correct errors in your credit report
- After looking over your report and identifying the errors start by sending a letter notifying the credit bureaus of the exact errors
- Send a letter the exact creditor that has reported the error
- Follow up again in 30 days to ensure it has been taken care of
If the issue with your credit score is simply because of errors this can be fixed rather quickly, but to bump up your score for other matters it could take several months.
Some Loans are Denied Due to Lack of Income
Lenders want to be absolutely sure that you can easily make the loan payments before they will push for loan approval. In the mortgage, world lenders are legally required to run the calculations on your ability to make the minimum monthly payment with information about your income.
Lenders look at how much the applicants earn each month compared to how much is required to be paid out each month. This is your debt-to-income ratio. If there is not enough income left after bills and debts are paid to cover the monthly mortgage payment you may be denied.
Buyer Took on Additional Debt After Applying
If you went through the pre-approval process and started searching for homes, but also went out and bought a new car or financed a new bedroom set for the home you put an offer in on this can add to your debt to income ratio as well as alter your credit score. If these factors significantly change you may be denied actual loan approval.
Large Unexplained Deposits in Your Bank Account
When you are being pre-approved for a loan a lender will ask for down payment documentation to prove you have the funds. If they see large lump-sum deposits in your account that cannot be explained through the documentation it sends a questioning red flag to the underwriter.
Getting a New Job
Lenders like to see that you are reliable and stable when it comes to your finances. One way they help to determine this is with job history. Some loans will require one to two years of experience at the same workplace for approval. If you are about to start a new job or have recently begun a new job talk with your lender about how this may affect approval.
Having a solid understating of your financial status and stability will help you to move forward after a mortgage denial. No matter what it is always good to have a healthy knowledge of your financial status. Next, we will look at applying for another mortgage.
If you have more questions about your personal financial status and your ability to qualify for a mortgage in California please contact me anytime.
More Good Info:
- When should we get pre-approved
- When can I qualify for a mortgage after a bankruptcy?
- 6 Things to help you qualify for a mortgage
- 4 Ways to Increase your credit score
No Hidden Fees - No Obligation - No Upfront Costs