A Declined Mortgage Shouldn’t End Your Homeownership Goals
Mortgage rates are now at three-year lows, and renting households are discovering it may be cheaper per month to buy a home.
With rates in the mid-3s, home buyers are applying at heightened levels. Most of them will be approved.
According to loan software company Ellie Mae, more applicants are being approved now than at any time this decade. Lending standards are loosening, and more buyers can qualify.
But not everyone will.
Some would-be home buyers and refinance applicants are still turned down for mortgages.
Fortunately, a mortgage denial is never the end of your homeownership goals. At least, it shouldn’t be.
Solutions are often simple, even obvious. Still, your lender can overlook them. You as the buyer can drive the process of turning a denial into an approval. The first step is understanding why you were turned down.Verify your new rate (Feb 23rd, 2020)
Ask Why Your Loan Was Turned Down
Lending regulations are on the consumer’s side when it comes to mortgage denials.
Lenders must send you a formal denial letter if your mortgage application has been turned down. This letter is typically known as a Statement of Denial or Adverse Action Notice.
But the letter isn’t always clear. It may use language or terminology that is not familiar with the typically consumer. For instance, it might say “value or type of collateral not sufficient.”
That means there was an issue with the appraisal, or the home’s value was lower than expected.
Because these letters are not very specific, it is important to contact your lender if you still have questions. You have a right to know and understand the reason for which you were turned down.
Common reasons for credit denial include:
- You don’t show enough funds for your downpayment
- Your debt-to-income (DTI) ratios are too high
- Your credit scores are too low, or you don’t have enough credit
- Your loan-to-value (LTV) ratio is too high
Whatever the reason, you can most likely correct it with some time and effort. But sometimes, turning a denial into an approval is surprisingly simple.Verify your new rate (Feb 23rd, 2020)
Are There Other Loan Options Available?
It’s important to understand exactly why your mortgage loan was denied so that you can figure out the best course of action moving forward.
That way you can decide if you should press the issue with your current lender, if you should apply elsewhere.
You may decide it is best to put things on hold for now.
Before you do that, though, assume that your lender has not exhausted every option.
One of the following reasons may explain why your lender overlooked a solution.
- The lender does not offer alternative programs
- Your loan officer has little experience with other loan types
- The underwriter missed a key piece of information
Sometimes, suggesting alternatives could help your lender think outside of the box.
There are also times that you may be turned down for reasons that, although may disqualify you for one loan, don’t disqualify you for every loan.
For example, if your application was denied due to your credit score being too low for a conventional loan, perhaps you’d qualify for an FHA loan instead.
Conventional loans typically require higher credit scores and have less leniency for previous credit mistakes. They have less flexibility for higher debt-to-income ratios than their FHA counterpart.
Furthermore, you could qualify for a conventional loan but end up with a lower mortgage payment had you gone with an FHA loan.
Bear in mind that sometimes, your lender may not actually have the loan option that you need. That doesn’t mean the option isn’t available elsewhere however.
Some lending institutions don’t offer government loans. Others may not offer adjustment rate mortgages. A lower rate on a conventional 7/1 ARM, or an FHA loan could be the difference in getting you into that new home.
Raise Your Credit Score Or Appraised Home Value
The fix for your mortgage application could be just a couple of quick corrections on your credit report. If it’s a matter of just a few more points on your credit scores, your lender may be able to advise you on how to increase your credit scores with the help of a rapid rescore.
The rapid rescore process can raise a credit score by more than 100 points in days, not months.
Non-occupied co-signers may be another option. These are individuals — usually family members — who help you qualify for the mortgage, but don’t plan to live in the house.
The lender considers the co-applicant’s income along with yours. This reduces your debt-to-income ratio and improves chances that you will be approved.
If you were turned down to the appraised value, it may be worth looking into using another lender. Different lenders often use different appraisers.
Because appraisals are considered opinions of value, one appraiser may come up with a higher value than determined for your first mortgage application.Verify your new rate (Feb 23rd, 2020)
Why Not Try Again Now?
Even if you think you’ve exhausted your options for qualifying for a mortgage loan, don’t let that stop your home buying or refinancing plans.
Applicants who didn’t qualify one year ago may actually be approved now due to new loan programs coming available. The HomeReadyTM mortgage program requires just 3% down, and applicants can use income from non-borrowing household members to qualify.
FHA mortgage minimum credit scores are dropping at lenders nationwide. More applicants are accepted into this 3.5% down program.
If you don’t qualify today, you may in the very near future. Lenders are loosening guidelines daily. It would be unwise for a mortgage applicant to consider themselves forever “non-approvable.”
Most applicants can be approved, and very quickly, with the right steps in place.
What Are Today’s Rates?
Home loans are available on the cheap, with rates dropping to three-year lows. Check your home buying eligibility now, which may be boosted by these low rates.
Get a quote, which requires no social security number to start, and can be completed in just minutes.Verify your new rate (Feb 23rd, 2020)