What To Do If A Lender Refuses Your Mortgage Application
A lender could refuse you for a mortgage even if youve been preapproved.
Before a lender approves your loan, theyll verify that the property you want meets certain standards. These standards will vary from lender to lender.
Each lender sets their own lending guidelines and policies. A lender may refuse to grant you a mortgage if you have a poor credit history. There may be other reasons. If you dont get a mortgage, ask your lender about other options available to you.
Other options may include:
- approving you for a lower mortgage amount
- charging you a higher interest rate on the mortgage
- requiring that you provide a larger down payment
- requiring that someone co-sign with you on the mortgage
Real World Example Of A Pledged
Raymond James Bank offers a pledged securities mortgage whereby the pledged assets are maintained in an investment account with Raymond James. Some of the features and stipulations include:
- Clients can finance up to 100% of the purchase price of a primary home as well as a residential investment property
- Uses a combined pledge of real estate and margin-eligible securities
- Down payment is eliminated with 100% financing
- Avoids investment liquidation and any potential capital gains taxes
- No PMI insurance
- Offers pledged asset mortgages for family members as well
- If the pledged securities decline in value, Raymond James will require additional funds to be pledged
- Raymond James also reserves the right to liquidate the securities without prior consent if needed to shore up the account
Do I Need To Insure My Assets
It may be a good move to buy insurance to protect your assets. Some of your assets may already be insured certain laws mandate that your home or your car are insured.
Your home insurance may cover the value of some of your belongings, but if you have high-value jewelry, you might consider purchasing separate insurance or add on to your existing home insurance plan. For example, youll typically pay $1 $2 for each $100 of value for jewelry coverage.
You can also protect your income in the event that you are not able to work due to a physical injury or illness. Your job may provide disability insurance, but you also might want to purchase your own policy in case you are hurt or injured outside of work.
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How Lenders Verify Your Assets
After listing your assets on your application, your lender will verify that all of your financial information is correct. Theyll need to make sure that all assets are really yours and that they are traceable.
This means if you have large amounts of cash deposits going into a checking or savings account and the source cant be traced, your lender might ask some questions. Lets say you tend to cash your check and then deposit cash for your bills into your account. This could show up as a red flag when your lender reviews your banking history. Its always better to deposit your check and then pull out the cash you need.
Your lender will also check your overdraft history. If you frequently overdraw on your account you spend more money than is available to you this will show up as a red flag during your lenders verification process. It could cause your lender to deny your loan request.
Your lender might have questions about your physical assets. In this case, you can give your lender your appraisal report or insurance policy, which should answer any questions about an assets current value. This paperwork must be in your name to prove you are the owner.
Qualifying For A Pledged
To qualify for a pledged-asset mortgage, the borrower usually needs to have investments that have a higher value than the amount of down payment. If a borrower pledges security and the value of the security decreases, the bank may require additional funds from the borrower to make up for the decline in the asset’s value.
Although the borrower retains discretion as to how the pledged funds are invested, the bank may impose restrictions to ensure the pledged assets are not invested in financial instruments that are deemed risky by the bank. Such risky investments may include options or derivatives. Further, assets in an individual retirement account , 401, or other retirement accounts cannot be pledged as assets for a loan or mortgage.
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Asset Qualifier Is A Mortgage Loan Product That Allows Homebuyers To Use Their Assets Instead Of Income To Qualify
Angel Oaks Asset Qualifier product gives homebuyers the ability to qualify for a mortgage using their liquid assets. Borrowers must have a minimum of $500,000 in assets post closing. Qualifying assets include retirement, checking, savings accounts and stocks.
*Additional documentation may be required.
- Available for purchase and cash-out or rate-term refinance
- No employment or income information is required
- No debt to income requirements
- Primary residence
- Five years seasoning for foreclosure, short sale, or bankruptcy
- Loans up to $3 million
- Borrowers must have a minimum of $500,000 post closing assets
- All assets must be sources and seasoned for a minimum of 6 months
- Non-warrantable condos allowed
How Do Liabilities Affect A Mortgage Application
Weve talked a lot about assets, so its important to also mention the liabilities because they also impact your ability to qualify for a mortgage. Liabilities are debts that are unpaid.
The most common liabilities on your credit report are:
- Auto Loans
From a mortgage underwriting perspective, lenders will only look at the liabilities that appear on your credit report. They look at the minimum required monthly payments. Those monthly payments are used in the calculation of your debt to income ratio. Reducing these monthly liabilities will also be an advantage for you in combination with having assets.
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Be Careful With Making Cash Deposits Before And During Verification
As mentioned above, cash needs to have been deposited in your account a while before your mortgage application process begins in order to demonstrate your ability to save money. However, those cash deposits also need to be verifiable for them to be taken into consideration by the lender as part of your assets.
While youre preparing to apply for a mortgage, it might be wise to shift away from some of your cash-centered money habits and place greater focus on contributing to the assets that can be accounted for as part of your mortgage application. Only withdraw cash as needed, deposit checks directly into your bank account rather than cashing them and make it a priority to present yourself as the most financially stable and responsible applicant possible.
Check Your Credit Score
Before you get a mortgage, check your credit score to see where you stand. If your score isnt as high as you think it should be, remember that there are low-credit mortgages out there, such as FHA loans, that could be a fit for your situation.
There are several ways you can boost your credit score if needed, such as paying down your credit card, bringing any past-due accounts current and reviewing your credit reports for errors. If you spot a discrepancy, now is the time to contact the credit bureaus to correct it.
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Mortgage Reserves After Closing
When youre saving to buy a home, expert advice places an emphasis on having enough for the down payment and closing costs. But lenders will also look at how much cash youll have on hand after youve handed over tens of thousands of dollars at closing. Although it wont make or break your loan approval when all else lines up, your mortgage company will like to see that you have cash reserves to be able to cover any emergencies that arise.
When looking at mortgage reserves, lenders will use a formula to determine how many months your savings could cover if you should suddenly lose your income. That formula will be the money you have in reserves divided by your housing costs, which will give the number of months youll be able to cover your full mortgage. Although it isnt required to have a minimum number of months’ worth of reserves, it does factor into the lenders confidence in you.
How To Get An Asset
To secure an asset-based loan or mortgage, you must apply with a lender. To apply for the loan you will need to identify the assets you will offer as collateral and submit any requested documentation. Once the lender performs an initial review of your application and determines that you are a good candidate for an asset-based mortgage, they will present you with a preview offer and require you to make a preliminary commitment before they perform a complete review of your assets. Once your assets are fully audited, you will receive your approval and funding for your loan.;
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Other Asset Verification Issues
During the process of asset verification, mortgage companies arent only looking at the amount of money and nature of deposits in your various accounts. If you have instances of overdrafts during the two months of bank account information you provide, your mortgage lender may see reason for concern. However, this doesnt mean youll automatically be denied.
Lenders are allowed to use their discretion in situations like this. If your credit score is strong and your debt-to-income ratio is low, provide an explanation for the situation and dont sweat it too much. However, if your account shows a pattern of overdrafts, or your credit score is blanketed in dings for late payments, you may be looking at a denial.
How Do Lenders Assess Your Income
Your income is a major factor when it comes to being approved for a home loan. Mortgage lenders prefer borrowers who have a stable, predictable income to those who don’t. While they look at your income from any work, additional income is included in their assessment.
Your debt-to-income ratio is also very important to mortgage lenders. It indicates how much of your monthly income goes to your debts, and gives lenders an overall sense of how you’re doing financially. If your ratio is high, it can show you’re overleveraged and possibly not in a position to take on more debt, so you might face a higher interest rate or be denied altogether.
Keep in mind that the income and employment you indicate on your application is often verified, so use accurate information. Lenders will likely view your income documentation and may even directly contact employers for verification.
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Build Up Your Down Payment
When buying a home, you have to account for not only for your mortgage payment, but also for the down payment and closing costs. To bolster your savings to pay for these upfront expenses, consider:
- Setting aside a portion of your pay into a dedicated savings account
- Asking family and friends for help
- Saving your tax refund
Requirements For An Asset Depletion Mortgage
The borrower must meet the following requirements to qualify for an asset-based mortgage:
- Must have at least two times the desired loan amount in assets
- For example, if you are requested a loan for $100,000, you must have at least $200,000 in assets.
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Why Do Lenders Care About Assets
The main reason that lenders look for assets is to determine whether you have the down payment and meet their reserve requirements. Lenders want to know if you have sufficient funds to make mortgage payments even if you have a temporary job loss because if you do, they will feel more at ease when approving your loan application.
If you can document enough liquid assets for at least 6 months reserves, then lenders may even overlook things such as bad credit and low income because your assets. Some mortgage programs already have minimum cash reserve requirements. As a result, building your cash reserves is an important mortgage application tips to strongly consider
There are even cases where retirees with only social security income are able to qualify for a mortgage because they have a strong portfolio of retirement savings and investments. This is just one example of how documenting your assets can help you to get a mortgage.
Dont Make These Types Of Mistakes When Applying For A Mortgage
Don´t assume you will not be required to verify your assets. Moving money into your account from a family member or close friend will not work. The lender wants the money to be yours and adequately sourced or seasoned. If this money just showed up in your account, they wonÂ´t feel comfortable about the legitimacy of those funds. To be genuinely your money, then these funds need to be in your account for several months.
Don´t take out an undisclosed loan or borrow money from someone to show you have the required assets.
Don´t move assets around 60 days before applying for a loan. If you are using allowable assets from other account sources, then do your planning beforehand and transfer funds 60 â 90 days before applying.
Large deposits and mortgage approvals donât mix very well.
How To Get Prequalified For A Mortgage
Your mortgage specialist will need for you to fill out an application and check your three credit scores. Once you have qualified by your scores, your income will need to be determined to verify how much of a loan you can qualify for. Credit score requirements constantly change but for the most part you will need a 640 middle score to qualify.
Asset Reserve Requirements For A Mortgage
- Aside from down payment funds and closing costs
- Mortgage lenders may also require reserves
- Which are additional funds to cover monthly housing payments
- To ensure you have the capacity to make your payments going forward
If you get your hands on a rate sheet, or talk to a bank or mortgage broker, theyll usually tell you how many months of reserves youll need to verify assets and qualify for a mortgage.
Asset requirements will be defined in terms of PITI .
This means youll need enough money to pay for X amount of months of mortgage payments including principal, interest, taxes and homeowners insurance.; And mortgage insurance and HOA dues where applicable.
Reserve requirements will vary from bank to bank, and from mortgage program to mortgage program, but you can get a good idea of what you may need to provide for different property types.
Owner-occupied residences typically require two months PITI in reserves, but may ask for up to six months. In some cases you might not need any though!
For second homes, reserves can range between three to four months, but again, can be higher.
On non-owner occupied properties, otherwise known as investment properties, reserves are usually six months PITI or more.
Even if you apply for a no down payment mortgage, reserves may still be required to show the lender youre able to make monthly payments.
Assets On Mortgage Applications
The word asset refers to anything that is useful or holds value. You probably have plenty of assets in fact, youll be packing them up in boxes and moving them if your home purchase goes through. But a lender doesnt care about your spoon collection or the guitar your favorite uncle gave you when you were a kid. Your lender wants to know about the funds you have in various accounts.
The asset verification that mortgage companies do relates primarily to checking, savings, retirement and investment accounts you hold at the time you apply for a home loan. Youll need the current balance for each account, although your lender will understand this can reasonably change from one day to the next. Youll also need to list all vehicles, as well as any businesses you own.
What Assets Are Verified
A borrowers assets are not always just limited to the cash in a bank or savings account. If you already own a home and are in the process of selling, often times the lender will allow you to use a seller’s net sheet that will show the expected cash at closing from the home sale. Other forms of assets count as a reserve, such as:
- Retirement funds from a 401k or independent retirement account
- Stocks or mutual funds
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