Reasons for loan denial - If your mortgage has been denied, there are many reasons why. Here are some of the most common reasons.
You could be denied because of residency status. While some lenders will not lend to you if you are not a US citizen, there are other lenders who will. Also if you are unable to produce sufficient documentation for your income and have lower credit scores you might be denied without the possibility of a stated income program.
Your loan could be denied if you did not provide accurate information during the initial loan application. Underwriters verify nearly all information so you may as well provide accurate info up front!
Sometimes applications have been denied because the loan officer did not ask for the proper information or submitted too much information (ex Submitting a W-2 on a stated income deal).
If your mortgage application has been denied please call and we may have a program for you.
A mortgage application can be denied if the property being bought is not acceptable on the secondary market. For instance, a condominium or cooperative project that is not Fannie Mae eligible, or a house that, based on the survey, has a part of a structure built on a neighbor's land. While no banks would lend on a property with title or survey issues, some lenders thrive on making mortgage financing available to condos and coops that are non-conforming.
Your loan could be denied if you have not been in the same line of work over the past two years. Your loan could also be denied if you have huge gaps when switching jobs.
Your mortgage can be denied for many credit reasons. Your credit score may not fit the guidelines of the program that you are trying to qualify for. You may have too much derogatory credit listed on your credit report or you may have open collection accounts that you are unable to pay and the lender requires them to be paid to obtain the loan you are looking for. Lack of credit tradelines or lack of a credit history are other big credit reasons as to why people are denied a loan. Credit tradelines are open credit accounts reporting on your credit report. If you do not have enough open active tradelines a underwriter may not have enough information to make a decision on wether you are credit worthy of obtaining a loan from them.
Your loan can be denied because income is not sufficient to support the monthly payments according to the lender guidelines.
Loans are sometimes denied because of things that happen after the application is taken. Some of the more common are:
- termination of employment, such as quitting a job to find one closer to the new home, or getting fired for missing too much work while planning the big move to the new home
- increased debt, such as buying things on credit to go in or with the new home, like furniture or a new car, or spending that anticipated refinance money a little early
- late payments, because the borrowers assumes they can make the payment after their refinance closes or the refinance will pay it off.
Lenders are required to send you a form stating the reason for your loan denial.
What To Do When The Lender Says "No" - Ask specifically why the loan is being turned down. Is the problem with you the borrower, or is it the property? If youre weak on loan qualifying, would a larger down payment make a difference? How about if you reduced some of your debt? Would another loan program help you qualify? Asking specific questions can get you specific answers on what needs to be changed and why.
Improving the quality of your credit will help a great deal in getting approved for a home loan.
A good quality mortgage broker will be able to help you work through the issues and tell you exactly what needs to be done in order to qualify for a future loan.
Your mortgage broker may also try another lender if your loan is denied. There are many lenders with many different programs on the market today. Flexibility is where a mortgage broker's strong point is over a bank. Your mortgage broker can search through many different sources to find a lender who will possibly fund your loan.
The most important thing is to Never Give Up! Work with your loan professional on steps to make homeownership a reality.
What lenders look for - Before lenders lend money, they need to be assured that the funds will be repaid. In other words, is the prospective borrower creditworthy? To find out, they ask for various types of information.
Sub-prime lenders understand you may have come upon some hard times in the past and will look at your more recent credit history.
Lenders look at the risk that you will default on the loan, based on several facors. Those include credit score, history of paying your mortgage or rent on time, debt-to-income ratio, occupancy type (primary residence, second home or investment property), property type (single-family, 2-unit, condo), percentage of the property's value you want to borrow (60%, 70% 80% 100%), and work history, among others.
Lenders will look at an applicants past credit history, income and the value of collateral being used to secure the mortgage. The lenders will compare this information to their guidelines to determine if the applicant is a good credit risk.
With regards to repayment capability, most banks prefer that a borrower has total debt obligations of less than 45% of gross income. Total debt include any monthly obligations the borrower has, including the proposed mortgage payment, property tax, homeowner insurance, automobile financing, credit card installments, alimony, etc. Utility and food costs are not considered debts and are not included in the Debt-to-Income ratio. Some non-prime mortgage lenders allow a Debt-to-Income ratio of up to 55%.
Lenders will look for job stability, credit worthiness, disposable income, liquid assets, debt to income ratios and loan to value ratios among many other things. Sometimes a borrower can be deficient or weak in one of the above mentioned areas but make up for it in others to still be considered for the financing desired. Lenders don't typically want to see a lot of job changing or career changing happening. Also, obviously the better the credit the better the chance the lender will be repaid on the debt. Disposable income is how much income is left over after you have paid all of your monthly obligations. Debt to income is a ratio that is calculated based off of how much you make divided by how much your obligations are and LTV (loan to value is simply how much of a mortgage you are borrowing compared to how much your home is valued at. These are all very important items that a lender looks at as a part of your whole package.
Reserves is another factor that lenders want to see. Reserves are simply how much liquid cash you have in the bank to make payments with. If you are a first time home buyer the reserves can be anywhere from 2 -6 months worth of PITI (Principle, Interest, Taxes and Insurance). Various lenders will have different guidelines so be sure to ask your Mortgage Professional how much cash you will need to have in reserves.
Your credit worthiness will affect the interest rate and the number of programs that are available to you.
