Was Your Mortgage Declined?

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Having your application for a mortgage declined is particularly devastating, because it throws your dream of homeownership into doubt. Just because one lender rejects your mortgage application doesn’t mean you’ll never be able to buy a home.

So, if you’ve been denied a home loan, the first step is to ask the lender why you had your mortgage declined to know what you’re up against. It’s usually three main reasons : a credit issue, an income issue, or the applicant doesn’t have enough cash to make a down payment. Once you know what the problem is, try the steps below to turn your home loan luck around.

Mortgage declined because of your credit score?

If you’ve racked up a lot of charges on your credit card, you’re not aloneĀ – The average U.S. household has $15,762 in credit card debt. Most mortgage lenders will look at your credit score to gauge your financial responsibility and worthiness for a home loan. A perfect score is 850, but research suggests that only about 0.5% of consumers hit that coveted mark. To qualify for a conventional loan, you’ll need at least a 620 credit score. FHA loans require only a 580 credit score but not everyone qualifies. If a lender says your credit score is too low, check your credit report for errors. If you find errors on your credit report, it could take 30 days to get them removed – unless you let the lender take care of the work. Unfortunately if you’ve driven your credit score to the ground by yourself, you’ll need to take steps to repair it. The best way to raise your score is to pay off your credit card bills on time each month. Also, keep your balance low throughout the month, since your debit to credit utilization (the amount of debt you’ve accumulated on your credit cards divided by the credit limit on the sum of your accounts) comprises 30% of your FICO score. Altogether, it could take several months to nurse your credit back to health.

Mortgage declined because of your debt-to-income ratio?

If a lender says your mortgage application was denied because of your debt to income ratio, that just means your income from your job isn’t high enough to offset your debts – from college loans, credit cards or elsewhere. Lenders may fear that you’ll struggle if you take on more debt in the form of a home loan, and might default as a result. So, they decide it’s not worth the risk. Sure, you could take on another job to raise your income or pay off your debts but that’s easier said than done. Instead, try applying for a mortgage with another lender. It’s very common to be turned down by one lender and then be able to get approved by several others. Different lenders have different debt to income requirements. For instance, credit unions are more flexible than big banks. In general, most lenders will allow a maximum debt to income ratio of 43% with some allowing up to 50%. For some lenders – what they consider income can vary. Some will factor in your bonus history, in addition to your gross income, while other’s won’t. All that said, you should stick to a reasonable budget when buying a home.

Mortgage declined because of your down payment?

Most lenders like to see home buyers make a 20% down payment. But that percentage is just ideal – it’s by no means required. The Federal Housing Administration lets buyers make down payments as low as 3.5%. If you’ve served in the military, the Department of Veteran Affairs loans require nothing at all. If you’re eligible for a conventional loan, you will likely need at least a 10% down payment. Select lenders will take 5% but you’re going to get hit with a significantly higher interest rate. The bottom line : There are ways to put down far less than 20% on a home. There are also many ways to scrounge up a bigger down payment fast. For instance, you could tap into retirement accounts such as your 401K or IRA, although you should only do so only in certain circumstances and exercise caution. Or, you can inquire into down payment assistance programs or get gifts from family or friends. If you have the patience to amass your own down payment, you can get the ball rolling by automating contributions from your paycheck to a dedicated savings account. Before you know it, you’ll have a good chunk of change that will improve your mortgage application prospects.

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Levitan Realty

5628 Strand Blvd, Ste 2,
Naples, Florida 3411

Ph: (239) 290-5454

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