Why Was My Mortgage Application Rejected?
There are several reasons why an application for a mortgage might be rejected. Here is a list of 6 reasons that you should avoid.
1. Income issues. Not having enough income to qualify for the amount of the mortgage you are seeking. This seems to be simple in concept, yet a lot of people try to get a mortgage thinking they can count their spouse’s income. The spouse has a credit score below the minimum and would not qualify by him or herself. Because of the low credit score the underwriter cannot count their income toward the mortgage payment. If you want to count both incomes, spend some time in repairing the low credit score.
2. Debt to Income Ratio. If your debt to income ratio is too high your mortgage application will be denied. Some people try to rely on bonuses as part of their income for a mortgage. Bonuses cannot be verified as steady income because they may or may not be earned during the course of the year. If there are outstanding student loans, car loans, appliance loans, etc., these can have a direct effect on the debt to income ratio. If the ratio is too high, you will not qualify for a mortgage. Talk to your loan professional to determine your debt to income ratio.
3. Credit issues. Your FICO score is the biggest contributor to your success getting a good mortgage rate and qualifying for that mortgage. A score of 620 is required to qualify for a mortgage. Of course the higher the credit score, the lower the interest rate you will receive.
4. Property doesn’t appraise. This has become increasingly common in today’s market. Past practices of using an appraiser that the lender has used for years does not happen in today’s market. The lender calls a clearinghouse which calls the next appraiser on the list to do the appraisal. If that appraiser is not familiar with the area where he is assigned, they may not know the value of the property in that area. A real estate professional will enlist the assistance of a professional in an area that they are not familiar with, but an appraiser cannot. So the chances of the home not appraising for the price that was agreed upon is higher then in the recent past. Your real estate professional should protect you with an addendum for just such a contingency.
5. Condition problems. If you are applying for an FHA loan, sometimes the condition of the home is a factor in determining if the loan will “go through.” There are certain standards that must be met for the home to appraise for an FHA loan. For instance, the crawl space must be free of debris and have a moisture barrier in place. If the current owner fails, or does not want to fix the problems, the loan will not be granted.
6. Difficulties with the application. We are a long way away from the days when the loan officer of the bank knew you by name, and knew that you would be a good risk for a mortgage. Today, all information on a loan application needs to be verified. Your loan officer will be asking for pay stubs, tax returns and other forms of income verification before approving your loan. Along with income verification, they will also need a list of all your creditors so that they will know your debt to income ratio. As discussed earlier, this is a strong indicator of whether or not you can afford to repay a mortgage.