Having your mortgage application denied can be a humiliating experience. The first step to having your application approved is not to take the denial personally and correct whatever problems you have. Here is all you need to get started. Understanding why your mortgage application was denied is important to correcting the problem. Talk to the lender and find out exactly why the loan was denied. Here are several common reasons for mortgage application rejection. Your Loan-to-Value Ratio on the Property is Too High If the loan-to-value ratio of the property is not right the lender will deny your mortgage application. If this happens it means you are trying to borrow is too close to the amount your property was valued at appraisal. Mortgage lenders have thresholds that loan-to-value ratios must fall into for approval. To be approved you may need to borrow less; one way to do this is to increase your down payment amount. Insufficient Down Payment Many traditional mortgage lenders require at least a 20% down payment. If you do not have this much you may not qualify for traditional financing. If this is the case you will need to secure the necessary down payment to qualify. An alternative is to seek a lender that will approve 100% financing or grant you a piggyback mortgage for the down payment. Income too Low Many lenders will deny your application if the payment amount is greater than 28 percent of your monthly income. If your total monthly debt obligation is greater than 36 percent of your monthly income your application could be denied. If this is the case you need to pay down your debt as much as possible in order to be approved. Bad Credit If your credit score is too low to be approved there are steps you can take to improve it. Your credit score is based on a number of factors in your credit reports. Your repayment history is one such factor. By improving your record of on-time payments for at least six months you will improve your credit score. Reducing your debt-to-income ratio will also improve your credit score. Pay down the balances on your credit cards and close the accounts if possible. Finally, make sure your credit reports are accurate. You will need to request records from each of the three credit reporting agencies and scrutinize these reports for errors. Each agency has their own procedure for disputing errors; if you find errors in your credit reports dispute these errors before you start reapplying for a mortgage. To learn more about the mistakes homeowners make when applying for a mortgage that lead to denial, sign up for a free mortgage guidebook. |
