It’s far from easy to get a home loan now that mortgage companies are highly regulated and mortgage application processes are under scrutiny. Ever since the housing market bubble burst in 2007, mortgage lenders have buckled down and tightened their lending requirements.
Now, only about 55 percent of mortgage applications are actually accepted by lenders. If your mortgage application has recently been rejected, knowing the common reasons for rejection can help you determine if the rejection is fixable. Here are 5 common reasons why 1 in every 2 applications are rejected by lenders:
Failure to properly document sources of income
Be sure you have all the documentation they might want to see! Don’t allow yourself to be rejected just because you didn’t provide them with all the information they might need, What does that mean? Well, your lender may easily get your credit score, but it will be difficult for them to verify your income if you didn’t submit all acceptable documents. With your pay stubs and bank statement that you submitted you also need to provide tax records because those will back up those claims, and if you don’t do it, your application will be in most cases denied.
Appraisal Value is Too Low
When you pick your dream home and negotiate an offer on the property, the amount that you are purchasing the home for needs to be equal to or less than the property’s actual value. If the value of the property is appraised to be significantly less than the mortgage amount you are applying for, the loan application will be rejected. To fix this, you may need to hire another appraiser, renegotiate the purchase price or apply to a second lender.
Lack of the Compensating Factors That Offset the Drawbacks
All mortgage applications have some negatives on them. Your debt-to-income ratio may be high, your credit score could be on the borderline, or you may be new to the state with a new job. To offset the drawbacks on an application, the lender will look for positive compensating factors. If these are not present and the lender is on the fence, your application will more than likely be rejected. Some compensating factors include down payment of 20% or more, credit score greater than 740, large bank account balance, loan-to-value under 80%
Choosing a Bank with Limited Options
Some banks have more loan programs than others. Banks that have limited options to choose from may have tighter and more restrictive lending requirements. If the bank will not do your loan, there is a good chance another bank with looser criteria will. You should be applying to banks with a large set of programs or multiple banks to strengthen your chances of getting an approval.
If you have major blemishes on your credit, improvements can take time. There are, however, instances where the issues can be fixed rather quickly.
There are several things you can do if you are one of those people whose score is really just below the minimum requirements. You can bump up your score if you pay down credit balances, that will sort out within a few days! If your credit score is holding you back, the USDA loan lenders at USDA Loans Direct suggest that you meet with a financial specialist to get the best advice about how you can improve your credit before applying again.
There are ways to fix some rejected applications, but there are cases where a denial may mean you need to wait. That is why you need to determine for sure if you got denied because of some glitch or missing documentation and information.