Top 3 Reasons Your Mortgage Application Was Denied
05/18/2010 No one fills out a mortgage application and hopes it'll be denied. But denial happens. Very often, denial happens for one of three reasons. Many first time home buyers make these mistakes:
1. Apply for more than you can afford. Exceeding the lender's debt-to-income ratio is the fastest route to mortgage denial. Debt-to-income is a calculation that represents the percentage of your monthly income that goes towards repaying your debt. If the percentage of income you need to repay your housing expenses plus all of your other outstanding debt exceeds the lender's underwriting guidelines, chances are your mortgage application will be denied. If denied because of debt-to-income, choosing a less expensive home and reducing your debt are two things you can do to improve your chance of mortgage approval.
2. Don't save for a down payment. Thanks to the sub-prime mortgage meltdown, the days of zero-money-down mortgages are long gone. If you can't show you have money set aside to cover your dream home's down payment, your mortgage application likely will be denied. Depending on the lender, you'll need a down payment between 3.5 and 20 percent of the purchase price of the home. Having money for a down payment shows the lender that you're committed to home ownership. It also ensures the lender has enough collateral to secure the loan. Be careful of any lender offering a mortgage with no money down. Chances are you'll end up paying in other ways. 3. Be late paying your bills. Lenders are reluctant to lend money to people with a history of making payments late or not at all. When you're late paying your phone, credit card and other bills, creditors report those late payments to the credit bureaus. Late payments lower your credit score and flag you as a higher-risk borrower. These days, a credit score below 620 is considered bad. If you plan on buying a home start paying down your debt and making all payments on time. Both actions will help increase your credit score. If you can't do this on your own, seek assistance from a company or agency that specializes in credit repair.
If your mortgage application is denied, you're entitled to know exactly why. Find out from the lender and then take appropriate action. Doing so will improve your chances of approval next time around. You may also want to check out some specialty loans such as FHA home loans which you may be able to be approved for.
