It happens. Even if you have a “pre-approval” from a mortgage lender, your application for a mortgage might be declined. While this can be a major disappointment, don’t despair. There are a number of reasons your application was declined. Gaining an understanding as to exactly why you were declined will help you to correct deficiencies so that you can apply again and get approved.
Some of the Reasons You Were Turned Down
- Insufficient credit or poor credit-In order to get a mortgage application approved, you’ll need to have a strong credit report. If you have no credit or not enough credit you can work to build it up by making any debt payments on time and in full. This will allow prospective lenders to see that you can manage your credit and your debt.
- Too much debt-If you’re carrying too much debt, the lender may be concerned that you’re getting in over your head. Add up all of your credit card payments, installment loans, other debts with recurring payments, alimony, child support, and the estimated mortgage payment. If the total of all these payments is more than 50% of your total monthly income, your debt-to-income ratio is too high.
- Time on your job-If you’ve only recently changed jobs, or if your employment records show a history of frequent job changes, the mortgage company may feel that you won’t be able to sustain your income and consistently pay your mortgage. Lenders like stability, and many will require that you be with your current employer or in a very similar position for at least 2 years.
- Unexplained cash-If a mortgage lender sees a sizable recent cash deposit in your financial records, they may suspect that you’ve been gifted or lent that money and you might have to pay it back. This would hinder your ability to service your mortgage. They will want to know the source of any funds to feel comfortable making your loan.
- Inspection issues-If issues come up during the appraisal or home inspection process, the lender may refuse to make the loan if they see it as a bad investment. In this situation, you should probably be happy that you didn’t end up with a house that was going to cost you dearly in the future.
Action Steps You Can Take
- Correct any credit problems-If the lender turned you down because of your credit report, you need to make sure that the reporting agency has the correct information. Obtain copies of your credit report from the three big ones-Experian, Equifax, and Transunion. If there are errors, you can ask that they be corrected through the agencies’ dispute resolution process. If the negatives on your credit report are valid, you’ll have some work to do.
- Pay all of your bills on time every month in addition to servicing your debt, it’s important to consistently pay any other bills you may have. There are lenders that will use your on-time payments toward rent, utilities, or your cell phone as an alternative form of credit. This is particularly true if you don’t have very much credit.
- Pay off some accounts-Paying down your debt with recurring payments is a good way to improve your credit scores. If you have no credit, get some accounts in your name, then make consistent on-time payments.
- Check for other loan programs or other lenders-As the saying goes, there’s more than one way to skin a cat. If one lender has turned you down, you can always apply elsewhere, and you might get a different result. The lender that declined your application for a certain type of loan may have other programs that you could qualify for.
- Pick out a different property-It could be that the lender suspects that you wouldn’t be able to afford the payments. If you find another house for a substantially lower price, you may qualify.
- Increase your income-A higher monthly income will help to improve your debt-to-income ratio. You can apply for higher-paying positions or take a part-time job. You can also use the increased income to lower your total amount of debt.
- Save more money-Make a concerted effort to save more money and increase your reserves. Having a large down payment can work wonders to offset any negatives in other parts of your mortgage application.
- Watch your credit utilization-Use your credit wisely by controlling the total amount of your debt relative to how much credit you have available. If you have a credit card account that you’ve paid off, don’t close the account, leave it open but don’t use it. The available credit on that card will help to lower your credit utilization.
Final Thought
Applying for a mortgage can be a long and tedious process and being declined can be devastating. By understanding how lenders look at you as a potential borrower will help you to know how to improve your chances of getting that approval letter the next time around!
Let Us Help You!
For over 20 years, Oklahoma’s premier mortgage company, Financial Concepts Mortgage, has been providing mortgage assistance to the citizens of Oklahoma with some of the best rates in the nation. We do our best to relieve you of the stress surrounding the home-buying or refinancing process. Our goal is to create lasting relationships with each and every client and to continue providing excellent service for years to come. If you’re a first-time home buyer, a previous homeowner, are interested in refinancing, or are looking to consolidate debt, we can help. Our Oklahoma-based team will work with you and your family to ensure that you get a home loan solution tailored to your specific needs.
For more information about our company or the services we offer, visit our website. To speak directly to one of our loan officers, give us a call at (405) 777-4281 or visit us in person at any of our four locations in Enid, Edmond, Midwest City, or Eufaula.