Various factors can affect an application’s status. Low credit or debt can result in rejection, but there are also additional causes within your control. Some of these might include:
- The loan amount being too high compared to income.
- The loan amount offered being too low to purchase the desired home.
- Not discussing down payment or financing options.
Whatever the case may be, it’s easy to lose focus in light of a rejection. It can feel emotionally stressful, but it’s not too late to get back on track! Fight back against your finances and get a grip on securing your mortgage.
So maybe your loan application was given a thumbs down. The good news is that your mortgage isn’t far from reach. Interested in starting the process? We’re here to help with these simple steps.
1. Find out why the loan was rejected
First things first. You’ll want to know why your loan was turned down. Thankfully, lenders are federally obligated to give you the reason, and all in a handy document called the “Adverse Action” Notice.
This notice states all reasons a requested loan was not approved, giving figures from credit agencies and verified income as examples. It may be your personal credit, work history, or even the value of the house. If denied because of a credit issue, lenders disclose which credit reporting agency has provided the data.
First, it’s your job to receive multiple credit reports. Ensure your lender has up-to-date information and verify the notice’s accuracy. If there are any errors or discrepancies, try your best to provide proof to your lender and credit agency.
You’re allowed access to your credit for free. Find out how to access your free credit report online through the FTC Website here for more information.
2. Make some wiggle room
Qualifying for a mortgage might feel like a black-and-white affair, especially after getting rejected. But remember, most lenders want to qualify you for a loan! If a borrower was close to qualifying, lenders might be willing to reconsider with a little bit of negotiating.
You may not qualify at 4.1 percent fixed, but you could seek approval for a loan at 5 percent adjustable or higher. Negotiating with different terms or rates can get the approval you seek, but be careful. Especially when refinancing, different terms can mean different monthly payments for homeowners. Just make sure you aren’t breaking the bank!
There are added costs to consider, which increase when you start negotiating around mortgage points. These charges are required by mortgage service providers. Contact your friendly, neighborhood mortgage professionals to find out more.
If you’re a borrower who almost qualifies, starting a dialogue about gift money, down payments, or assistance programs might start you on the path to securing your mortgage.
3. Reduce your debt-to-income ratio
When looking at credit reports, the number-one figure lenders look at is your debt-to-income ratio. In a nutshell, debt-to-income ratio is all your monthly debt payments divided by your monthly income.
To calculate this, simply add up all your monthly debt and divide that by what you make in a month. If you pay $100 for an auto loan, $1200 for a mortgage, and $500 for other debts, add all of these up to gain a monthly debt payment of $1800. If you make $4000 a month, your debt-to-income ratio is 22 percent.
Lenders use this ratio to determine if borrowers might have a harder time paying additional monthly payments. Studies show that most lenders have a cut-off point for ratios around 43% and lower.
Chipping away at this ratio is one of the best ways to improve your credit score. Some debts, such as credit limits, can be improved through payment and a continuous good history. Pinpoint these for the quickest way to increase your credit score.
4. Get a second opinion
Not all lenders are created equally. Different firms have different standards they hold borrowers to. Some look for the most profitable loans, while others might work with the borrower, suggesting plans and programs that could help them qualify. While one lender might reject a loan application, others are willing to help you through the process.
Local lenders offer more flexibility. They might be able to turn a rejected conventional loan into a Federal Housing Administration, or help to acquire the documents needed to reduce the risk on a loan. Lenders in your neighborhood might have a better understanding of home values in the area, meaning more accurate appraisals and better guidance to find a house within your budget.
Credit agencies open borrower reports for 30 days, so there’s really no harm in applying to different lending agencies. Find out what other lenders say-they might even surprise you! We’d love to be your next opinion—get in touch with us! Let’s make a mortgage happen, whatever the option!
Give it another go!
Nailing down all or even some of these steps could give you the green-light for your next home mortgage. If homeowning is your dream, there are all sorts of options available to you. 30-year fixed rates are continuing to grow in popularity, and with rates on the rise applying could even be to your benefit!
Ultimately, your dream house needs to be affordable to you. Your dream isn’t denied, just your application. Monitor your situation, give it time, and build up your credit!
When you’re ready, we’d love to work with you. If you need a first, second, or even third opinion- get in touch with us. A mortgage professional will help guide you through everything there is to know.