Why Mortgage Applications Get Rejected?
When it comes to building your own house, a mortgage plays an important role. Owning a home is not a matter of a couple of dollars. It deals with a lot of financial responsibilities, and a mortgage can help you meet them.
Applying for a mortgage application should be done very carefully because there are chances of getting rejected. There are multiple reasons why a mortgage application gets rejected. If you think of applying for a mortgage, you need to know some of the most common causes. We are here to tell you why mortgage applications get rejected. So let us begin exploring the points that you should for sure avoid.
Bad credit score
A credit score is one of the main factors that a lender would look at before offering you a mortgage. Most people are aware of credit score, but we will explain it to those who don’t know it. A credit score is a numeric value that depicts a borrower’s creditworthiness. If the credit score is high, then the borrower will seem to be suitable to the lender. There is no fixed credit score for a mortgage because it depends upon the lender and the type of mortgage you want to get. For conventional and VA, the credit score could be about 620, and for USDA loans, it could reach up to 640. Some mortgages don’t demand a high credit score such as FHA, requiring only 500 credit scores.
Poor credit history
This is again a very important and unavoidable factor when it comes down to winning the lender’s trust. Credit history is a measure of the lender’s ability to repay the loan or any debt. It demonstrates the responsibility of the lender to repay the debts. The credit history is mentioned in the credit report which says the details of the credit accounts. In case you don’t use a credit card or have never taken out any loan before, you will have a ‘thin’ credit file. Having a thin credit history means you have a very minimal or nearly no credit history. This might become a reason for the rejection of the application. The lender will find it difficult to look up to your ability to repay the loan.
High DTI ration
The DTI (debt-to-income) ratio is a financial measure used to compare the individual’s monthly debt payment to their monthly gross income. Gross income refers to the income of an individual before tax or any other deduction. A reasonable DTI ratio means less amount of your payment goes into debt repayment. Having a high DTI ratio will signify that most of your income is going into paying the debt. The lender will review the DTI ratio, and if it comes out to be 28% or more, then your mortgage application can get rejected. In some cases, a 31% DTI ratio could be a cause for rejection.
Small down payment
A down payment is a payment that is made during the purchase of any expensive product or service. Suppose the borrower invests a considerable amount of its own money while making the down payment. In that case, the lender will feel that you have skin in the game. This makes the lender more likely to repay the mortgage without any obstacle. The more significant down payment means there are more chances of getting the mortgage approved. However, the small down payment can turn the table around, which might change the lender’s mind.
Missing application information
A mortgage deals with the huge financial amount, and that’s why the lender needs to know about every detail of the borrower. The mortgage application includes many sections where the borrower needs to fill in various information, and missing out any major can put the borrower into trouble. This is something that you, as a borrower, can avoid. You need to make sure every detail is filled by reviewing the application. All the information that you fill in the application should be 100% correct.
Recent job change
The income and source matter a lot to the lender because it tells the lender that the borrower could repay the loan because he/she has a fixed income source. If you have recently changed a job, it could become an issue as the lender might think that the borrower can’t hold on to a job risking the source of income. It would be better no to change your position before you are planning to apply for a mortgage.
What to do after rejection?
There are many reasons for mortgage application rejection, and you are the unfortunate one to face the rejection. There are a couple of things that you can do. The very first thing is to get in touch with a mortgage advisor and specialist. A professional will help you go through the application and figure out the reasons behind the rejection. You have the right to ask the lender what caused the rejection. This way, you will know what the things you need to work on are.
In some cases, it might take some time to overcome the hurdles. For example, if you have less income or don’t have enough credit, you might have to work hard to clear the road for yourself.
Click here to know about 6 Types Of Loans And Programs For First-Time Homebuyers
A mortgage is something that can help you build your dream house, and that’s why you cannot take it for granted. It would be advisable to stay cautious while applying for a mortgage as there are many chances of application rejection. If you are about to apply for a mortgage, we understand you are nervous but you don’t have to worry about it anymore because we are here. The team of PierPoint Mortgage has some of the Mortgage advisors. They can help you get the right mortgage loan or program with professional assistance. Get in touch with us to meet our mortgage specialist.