Your Debt To Income Ratio Isnt Good Enough
We mentioned this little number above, and we cant stress it enough. Your debt to income ratio is what lenders look at along with your credit. If you take all your monthly payments, add them up and divide that number by your monthly income, youll get your DTI percentage. Aim for 45% or less, the lower the better.
Limited Down Payment And Closing Funds
After supplying your financial information to a lender and reviewing loan programs, youll have a clear understanding of how much youll need to put down and how much you will need for closing. These funds cannot be financed into your loan. If you are unable to come up with the funds on your own, chances are very high youll receive loan denial.
Potential solution: A gift from a relative can be used as long as no repayment is expected. Just be sure to , creating a paper trail that documents the money as a gift. Transparency and documentation are critical. Another solution would be having the seller pay some of the closing costs, such as the origination fees. Finally, you could correct this problem by simply waiting, giving yourself more time to save up necessary funds.
Look For Help With Student Debt
Todays generation of homebuyers is also far more likely to be saddled with debt from their education, but that doesnt mean they cant buy a home.
If;your student debt is holding you back, consider an income-based repayment plan, which can reduce your monthly payments obligation. Some lenders may also have specific mortgage products just for doctors, who may have sky-high student loans but typically also have above-average salaries once employed.
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Your Credit Isnt Good Enough
Your credit score is a key component in your ability to get a home. The good news is that you can begin working on it before you apply, by making timely payments and paying off debts as youre able. Typically, the lowest score you can get by with is 620 or more. So, take a hard look at your numbers and make a plan to improve if you think your credit may be an issue.
Do I Have Enough Saved For The Deposit
Most home loans may require the borrower to put up as much as 20 per cent as the deposit, although some home loans may require a smaller amount with Lenders Mortgage Insurance. If the lender thinks your deposit is inadequate, they may not wish to take on the risk of lending you the amount youve asked for.
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Making Your Best Case
Not everyone who applies for a mortgage will get one. Potential creditors are entitled to use factors like your income, expenses, debts, and credit history to evaluate your application for a mortgage. You can strengthen your application by taking some basic steps to make sure it gets full consideration.
1. Before you apply for a mortgage, get a copy of your credit report. A credit report includes information on where you live, how you pay your bills, and whether youve been sued or arrested, or have filed for bankruptcy. National consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that, in turn, use it to evaluate your applications for credit, insurance, employment, or renting a home. The Fair Credit Reporting Act requires each of the three nationwide consumer reporting companies Equifax, Experian, and TransUnion to provide you with a free copy of your credit report, at your request, once every 12 months. To order your report, visit annualcreditreport.com or call 1-877-322-8228.
2. Read your report to make sure the information in it is accurate and up-to-date. Credit reports sometimes include inaccurate information: for example, accounts that arent yours or paid accounts that might be inaccurately reported as unpaid. If you find errors, dispute them with the consumer reporting company involved and tell the lender about the dispute.
When Can You Apply Again
In some circumstances, you should apply again immediately. If your borrower profile is generally good but one or two items are marginal, its possible that one lender will approve you even if another will not. Its also possible that you could get approved for a loan with more lenient qualification requirements, such as an FHA, VA, or USDA loan.
If youve shopped around for a home loan and been repeatedly rejected, however, get as much information as you can from each lender about why they rejected your application. Once enough time has passed that youve been able to correct those issuesor its been long enough since your foreclosure or bankruptcythen you can apply again with a better chance of approval.
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Are There Problems In My Credit Report
Since a home loan is a considerable debt, lenders review your debt repayment history, recorded in your , as a way of assessing you as a borrower. If youve missed a bill payment or struggled with any kind of debt in the past, this can affect your home loan application for several years. You may want to explain to the lender the steps you took to overcome the situation while submitting your application to avoid rejection and see if they might reconsider your application.
Renewal Denied By A New Lender
If your current lender denies your mortgage renewal, or if you just want to shop around for a better offer, you can try to renew your mortgage with a new lender . Unfortunately, your chances of being denied by a new lender are actually higher than if you stay with your current lender. This is because you need to submit a brand new mortgage application with your renewal.
The new lender knows nothing about your financial situation, other than the outstanding balance of your mortgage, which it will only know after looking at the renewal slip provided by your current lender. As such, it will need to verify your income and ensure you meet its specific credit requirements before it can approve your application. Youll be at a high risk of being denied by a new lender if youve missed mortgage payments or have significantly damaged your credit score. In that case, it might be best to stay with your current lender, since it doesnt need to re-qualify you.
If you have time before your renewal date, use our mortgage affordability calculator;to see how much you could borrow if you were looking for a new mortgage today. A new lender will use this kind of information to approve or deny your application.
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Final Words About Mortgage Denials
No one wants their mortgage loan denied at the last minute, especially if you were pre-approved. This includes the homebuyer, the lender and the real estate agent.
Fortunately, most of the reasons a mortgage is denied can be prevented. It’s important to understand why mortgages get denied after pre-approval so you aren’t making any of these mistakes.
Prior to making any decisions that could impact your financial situation, speak with your lender. He or she can often help ensure you don’t do anything that could hurt you when applying for a mortgage loan.
Choose A Better Property Or Apply For A Renovation Loan
Sometimes its not youits the property that lenders reject. Did you know there are home loans that let you finance the purchase price of a fixer-upper home plus the cost to renovate it? Getting approved might just be a matter of applying for the right loan product, like a HomeStyle Renovation, CHOICERenovation, or FHA 203 loan.
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Your Employment Status Recently Changed
Lenders like to see financial stability. When youre getting a steady paycheck, youre more apt to make your monthly payment. If you lost your job recently, a lender may question whether you can afford a mortgage right now. And a new job can come with a lot of uncertainty. You might hate it and quit. You could get fired. Or, maybe you accepted a job with a lower salary, which can also affect your loan approval.
If youre switching from a job in the same field and with equal or greater pay, this typically wont be an issue. If thats not the case, you can prevent this from being an issue by staying at your current job until after you close or by waiting to apply for a mortgage until youve been at your new job for at least a few months. If you cant do either and want to get a mortgage with a new job, just make sure you are transparent with your lender and in communication with them on this change. You may also provide additional documentation to help, including your offer letter and Verification of Employment from your employer.
Dont I Earn Enough To Repay The Loan
Lenders usually ask for verifiable documentation that can prove you earn as much as you claim on your application. However, they may still use their calculations to estimate whether you can meet your loan repayment conditions with this income. You may need to check whether all your income sources have been accounted for, including tax-exempt items.
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Your Job Status Changed
Whether youre celebrating a new job or were just let go, your mortgage could be denied. Most lenders like to see at least two years of steady income with your employer so any changes, even if positive, could cause a problem. If youre planning on making a job change, keep this in mind because most lenders will verify employment as late as your day of closing.
Trying For The Best Loan Terms
Consider shopping with several lenders to compare the fees they charge. When comparing costs, remember to look at all fees charged on your loan, as well as the interest rate.
Some lenders may try to charge some people more than others for the same loan product offered at the same time. Charges might include higher interest rates, higher lender origination fees and points, and/or higher broker origination fees and points.
Ask the loan officer or broker you are dealing with if the rate youre being quoted is the lowest offered that day. The loan officer or broker probably is basing the offer on a list of mortgage rates issued by the lender. Ask to see the list; its called a rate sheet. Regardless of whether you are allowed to see this internal company document, if you suspect youre not being offered the lowest rates available, consider negotiating for a lower rate or going to another lender or broker.
Negotiating is acceptable, and part of the process. Many of the fees for your loan, like origination, application, and processing fees, may be negotiable. Ask your loan officer or broker to explain each of the fees on your loan and whether theres flexibility on the amounts.
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Fire Up The Credit Monitoring
Not new to credit, but trying to buy a home with bad credit? The best way to get the ball rolling on rebuilding credit is by monitoring it. Check your credit report and score regularly there are various online sources where you can do this for free. You should also track your monthly debts and credit utilization to see where you need to make changes to improve your score. Having more insight into your credit on a regular basis will help you with everything were going to discuss in the upcoming sections.
What About The Mortgage Stress Test
To be approved for a mortgage, you also have to pass the mortgage stress test. This test helps lenders determine whether you can pay your mortgage at an interest rate higher than the one youre being offered. After all,;mortgage rates;can change over time, particularly for those with variable-rate mortgages. If you cant handle payments at a higher interest rate, your mortgage application may be denied, and you likely wont be eligible for a mortgage at any federally regulated bank.
Previously, Canadas mortgage stress test applied only to those with a down payment of less than 20% of the homes purchase price . The stress test requires those buyers to show that they can afford increased payments at either the Bank of Canadas five-year benchmark rate or the interest rate offered to them in their contract plus an additional 2% whichever happens to be higher.;
While you may qualify for a mortgage pre-approval. . . the deal can still fall apart
As of June 1, however, Canadas stress test rules are changing. Going forward, buyers with down payments of more than 20% , will also have to undergo the same stress test.
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Why Mortgage Applications Are Denied
Many mortgage brokers these days are closing as few as one out of ten loan applications. The majority of these denials are related to the home and not the borrower. This means the loan-to-value ratio for many borrowers is too high or they are upside-down in their property. Being upside down simply means you owe more than your home is worth.
You might hear that people are being denied mortgage loans because of the credit freeze and this simply isnt the case. The credit freeze you hear about in the news is because banks have stopped lending money to each other for fear of bank failure and has nothing to do with consumer lending or mortgage loans. There are mortgage loans available and you dont necessarily need stellar credit to find one.
Find Out Why You Were Denied
When your loan application gets rejected, it shouldnt be a surprise, says Brian Koss, executive vice president at the Mortgage Network Inc. Your loan officer should have given you a good assessment.
The mortgage application process is fairly rigorous, no matter who youre applying with. At some point in the process, if you have one or several strikes against you, the loan officer should give you some indication that you may not qualify.
The lender is supposed to provide you with the reasons you were denied so you can take that info to heart and use it to identify a way to resolve things, so you can get on a better financial footing and you can re-qualify later, says Bruce McClary, senior vice president of communications for the nonprofit National Foundation for Credit Counseling.
There are a number of reasons you could be denied for a mortgage, including:
- Changes in your employment status If you recently got a new job or were laid off, for example
- Changes to your credit or a low A number of things can affect your credit score, including opening or closing credit card accounts, making a big purchase like a car or taking out a personal loan. As you approach your closing, its a good idea to keep the status quo with your finances to avoid these pitfalls.
- Changes to your income For instance if you took a pay cut
- Too much debt If you already have a lot of debt, lenders may view your debt-to-income ratio as a mark against you, and could deny your application.
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Is There A Time Limit Or Do You Have A Recommended Time Limit Before You Should Apply Again
Mujtaba Syed:;;;;;;;;;;;;;
Once again, it really just depends on why you were turned down the first time around. If it was a credit issue for something that was unforeseen.
For example there was a collection on your credit or you went over your limit on one of your tradelines. Tradelines are what we call your obligations.
For example like a line of credit can be a tradeline. A credit card can be a tradeline. Let’s say you go over your limit on any one of those products, and you realize it was a mistake and you paid it down.
Yes, definitely, maybe wait three months, four moths. Wait for that credit bureau to update. Wait for that to kind of impact your score into a positive way.
Let’s say it impacts your credit, it’s gone up. You can try again at that time for sure. But if it’s other scenarios. If it’s income or something else then it could just depend. It might be longer.
And once again, a great discussion to have with your lender and specialist to see when is a good time to apply, and what can I do different for having more of a positive outcome next time I apply. So know all those discussions. Have all those discussions and prepare yourself for the next time.
Karl Yeh:;;;;;;;;;;;;;;;;;;;;;; So the question I have for you is:
Why Was My Credit Score Denied For A Mortgage
This is not true, however, there are specific credit score guidelines that each type of mortgage will have and also guidelines that each lender will have. One of the most common reasons a mortgage is denied is because of a negative impact to a buyers credit score.
Fortunately, most of the reasons a mortgage is denied can be prevented. Its important to understand why mortgages get denied after pre-approval so you arent making any of these mistakes. Prior to making any decisions that could impact your financial situation, speak with your lender.
Having a mortgage loan denied at closing is the worst and is much worse than a denial at the pre-approval stage. Although both denials hurt, each one requires a different game plan.
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