Across the country, mortgage loans are rejected every day. It’s a normal part of the industry, but it’s not a pleasant experience for the would-be borrower.
If it has happened to you, don’t worry; you’re not the only one and there are solutions. Even after your loan has been rejected, there are ways that you can solve the problem. In most cases, basic adjustments are the best way to improve your chances of loan eligibility.
The first step is to understand why your loan has been rejected. Once you have that basic piece of knowledge, you can move to solve the problem. In some cases, it may be as simple as working with the right lending agent, one that can look at your situation and find a mortgage that increases your chances of approval and fits your needs.
So if your loan has been rejected, let’s take a look at some of the most common reasons, then explore how simple adjustments and the right agent could result in loan approval.
There is a variety of reasons why your loan may have been rejected, but these are a few of the most common, as well as some of the possible solutions.
One of the main reasons that your application may have been rejected is a low credit score. Unfortunately, many people have missed payments or a large debt load, which can significantly reduce your overall score. Because the vast majority of loans use credit scores for approval (at least in part), this lead to many rejection letters.
However, if you work with our staff we may be able to find a loan that fits your needs and overlooks your low credit score. Certain factors may need to be used in order to increase the chances of approval. For example, you might need to bring a larger downpayment or use a cosigner to reach approval. There are also loan products that might help you work around the low-credit-score problem, such as VA loans, which don’t have an official score requirement, or FHA loans, which can be used with a credit score as low as 580.
Another issue, one that can be a little more difficult to fix, is having an income that is too low for the loan. There are other factors involved in mortgage approval, but your income is, for obvious reasons, one of the most important. The amount of money you earn has a direct affect on your ability to repay a loan, so lenders want to see exactly how much you make in a given month or year.
If your loan has been rejected because of insufficient income, there are a variety of solutions. The easiest is to simply look for a home at a lower price range. Instead of a home valued at $1 million, you may have to “settle” for a home worth $750,000. Another option is to increase your downpayment, which would reduce the total amount of borrowed money and thereby reduce the monthly payments.
Additionally, a quality lending agent can reduce your monthly payments by extending the loan terms. For example, if you have been rejected for a 30-year mortgage, we can look into a 40-year mortgage, which will reduce the monthly payments and may result in loan approval.
Lenders also want to know that your debts are not too high, as this can significantly increase your chances of defaulting on a loan. However, they do not look at the debts alone, but instead compare them to your income, using what’s called a “debt-to-income ratio.” Two people could have the same amount of debt and apply for the same loan, yet one could be rejected while the other approved. For example, if Alan and Bob both have $2,000 in monthly debt payments and apply for the same loan, but Alan’s income is $8,000 a month while Bob’s is $4,000, Alan is far more likely to be approved. This is because his $2,000 monthly debt payments only equal 25% of his monthly income, while Bob’s $2,000 payments are half of his earnings.
Essentially, it’s not the debt amount that matters, but how your debt compare to your income.
If you have been rejected because your debt payments are too high, there are solutions. For example, if you have been rejected for an investment loan because of a high debt-to-income ratio, a savvy loan agent may be able to use future rent collected from the property as the source of income and ignore your other debts.
Appraisal Came Back Low
It might seem strange that a lender or bank cares about the value of a home. After all, if the buyer and seller agree on a price, and the buyer can afford the mortgage payments, what’s the concern?
The concern comes from the fact that the property is collateral for the loan. If the borrower were unable to pay in the future, and the bank had to seize the property, they want to know that the property has a certain value. If this has been an issue in the past, there are possible solutions. For example, if you are refinancing, an FHA Streamline refinance does not require a home appraisal.
If your loan has been rejected for any reason, don’t give up. Contact our staff today and let us help you find the mortgage approval you deserve. We take pride in helping people who have been rejected by other mortgage institutions, and we will use our years of experience and dedication to common-sense underwriting to increase your chances of approval.
There are numerous options available to get you approved. Depending on your specific situation, and the type of loan you are looking for, we may be able to use a minimum downpayment loan or a true no-income loan. If you have been rejected for a rental property, we may be able to use future rent payments to reach approval. If you are self-employed and don’t receive paystubs, we can help with a bank-statement loan.
Whatever the situation, we want to help. Contact our staff today and find out how we can increase your chances of loan approval!
“I had a very unique problem qualifying and every other mortgage company I worked with assured me from the beginning that they could get me financed, and then it would all fall apart once we hit underwriting. Chad understood my circumstance from the beginning and patiently explained every step of the way.”
I hope you enjoyed reading this article. It’s my goal to keep you updated with the latest real estate mortgage news. I’m proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for LendUS. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2017. Got a question for Chad? Call (858) 353-8331 or submit your question online