Turned Down

It might seem strange, at least to people not familiar with mortgages, 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.

Almost all mortgage loans use the convenient credit-score system to determine whether a borrower is eligible for financing. While this is far from a perfect system, credit scores give borrowers and lenders a simple and fast way to move through the application. However, if you have a low credit score, it will often mean that your loan can be rejected.

Fortunately, there are solutions. First of all, you could increase your borrowing potential by bringing a larger downpayment. If you have a large downpayment, some loans may be available when they are otherwise off limits. For example, if you have a 500 credit score, you could secure an FHA loan if you have a 10% downpayment.

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."

Essentially, it’s not the debt amount that matters, but how your debts compare to your income.

Like all loan-approval problems, there is a solution. For example, you may be able to secure the financing you need for an investment property by using future rental checks as income. This can be a complex process that involves a market survey, but if the numbers are right it could allow us to ignore other debts.

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. 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.

When a mortgage loan does not meet QM standards it’s typically because the borrowers have different circumstances for a particular mortgage transaction. Non-QM mortgages are not considered high risk nor are they for those with less than perfect credit. Non-QM loans today are not subprime mortgages.

A non-QM loan can also be an excellent option if your current income is lower than what will be expected in the near future. For example, a couple buys a house and a spouse have not yet started a new job but will start in two months. Debt ratios could be temporarily high but the lender understands the high ratios will soon be lowered once the spouse goes to work.

Alternative lenders have a wide variety of special loan programs that are specifically geared to applicants who were turned down by their banks, even applicants with poor credit history, high debt-to-income ratios, and/or insufficient collateral. These alternative lenders have more relaxed requirements and are willing to take on more risk.