5 Things That Can Cause Your Mortgage Application to Be Denied
Around 9.3% of all mortgage applications result in denials from lenders. While this means that lenders approve most mortgage applications, they also deny around one in ten applications.
The most common reason people apply for loans is to buy homes, but people also apply for loans when refinancing. Unfortunately, getting denied is not uncommon, yet it can be devastating when you need a mortgage.
If you’d like to apply for a loan, it might be helpful to learn why lenders deny mortgage applications. Understanding the reasons might help you prepare for the process and reduce your chances of getting denied a loan.
Are you ready to learn the top reasons? If so, read this guide to learn the top five.
1. Your Credit Score Isn’t High Enough
Lenders have requirements for credit scores. If your score isn’t high enough, the lender might deny issuing you the home loan.
You may want to work on improving your score before applying to prevent getting denied for this reason.
2. You Don’t Have Enough Money for the Down Payment
You might also have your mortgage denied for lack of money to use for the down payment. Lenders base this decision on loan-to-value (LTV) ratios.
Your down payment lowers the LTV. So if you don’t have enough money for the down payment, the lender might reject your loan application.
3. You Have Too Much Debt
Mortgage lenders also review a person’s debts and compare the debts to their income. Then they use the debt-to-income (DTI) ratio to calculate the rate.
Homebuyers might struggle to pay their mortgages if they owe too much money compared to their income. You can learn more about the DTI requirements this mortgage lender has if you’re interested.
You can focus on paying your debts before applying to prevent this from occurring.
4. Lack of a Sufficient Job History
Buying a home requires repaying it for 15 to 30 years. As a result, you need a steady income, which is why lenders look at an applicant’s job history.
One factor lenders look for is a two-year job history. If you work the same job for two years, it shows stability. You could wait until you reach the two-year mark before applying, thus reducing your chances of rejection.
5. Bankruptcy or Foreclosure on Your Record
The lender will examine your history during the mortgage process to see if you filed for bankruptcy in the past. They’ll also look for a history of foreclosures.
If you have either of these on your record, they might deny your loan unless you wait the appropriate time before applying.
Complete a Mortgage Application to Initiate the Process
If you feel that you meet the requirements for a mortgage, you might want to find a lender to start the process. Your lender will ask you to fill out a mortgage application, and they’ll review it when you return it.
They’ll likely approve your loan request if you meet all the eligibility standards.
Did you enjoy this article? If so, feel free to check out others on our site to learn more about mortgages.