Mortgage Application Rejection
Mortgage rejection happens to thousands of potential homebuyers each year. It can be discouraging, especially after putting in so much work to apply for just one mortgage loan. Understanding why you were declined along with other reasons people are often rejected can help you when applying for another loan later on.
Freedom Mortgage has made a list of the top three reasons people get turned down for loans, as well as tips you can use when filling out your next loan application:
Reason #1: Your Credit History
Your credit history is the main factor that lenders weigh to determine the risk of approving you for a loan. If you have major red flags on your credit report like foreclosure or bankruptcy filing, you may be denied. Simply having a low credit score or limited credit can also lead to rejection.
It’s important to check your credit score before you apply for a loan to determine where you stand and how you can improve your overall score. The federally mandated website AnnualCreditReport.com is a good place to start to get more information about your own credit score.
If you find any errors in your credit report, it is important to dispute them as soon as they are discovered. Fixing your credit score now can save you time and money in the long run, since you won’t be paying more than necessary for your mortgage loan.
Reason #2: Insufficient Income
If you don’t make enough money or have irregular employment, a lender might assume you won’t be able to consistently afford your mortgage payment. Even if you think you can afford the mortgage and payments you’re applying for, you’ll be denied if you can’t adequately document your real income. In addition to checking your debt to income ratio, lenders will look at the value of any property you currently own to assess your ability to pay.
If lenders believe you have insufficient collateral or too little equity, you’ll be denied a mortgage loan. Estimate how much you can afford to borrow with our mortgage affordability calculator.
Reason #3: Your Down Payment is Too Small
Lenders look at down payments as an investment in your future and a measure of your conviction. If you offer a low down payment, lenders may be wary that your money isn’t where your mouth is and turn you away. Typically, homebuyers should offer a down payment that equals 5-25% of the total value of a home.
Manage Your Debt
If you got denied for a mortgage because you have too much debt, try managing your finances by setting up a sound budget, tracking expenses, paying down debt and saving for the future. When you’ve saved enough for a sufficient down payment, you can reapply for a mortgage loan.
Ask for an Interview
If your loan application was denied, ask for an interview to ensure there were no mistakes and get a full understanding of why you were rejected. If you find out there was an error you can easily fix, do so. If not, learn as much as you can about why you were turned down so you can take steps toward getting approved next time.
Take a look out our mortgage application checklist to discover which documents and information you’ll need to properly apply for a mortgage loan.
Latest posts by ChuckM (see all)
- A Millennial Guide to Buying Your First Home - January 4, 2017
- Getting to the Truth: Top Mortgage Misconceptions and Facts - December 28, 2016
- What Are the Most Common Reasons Why People Get Turned Down for Loans? - December 14, 2016