Ouch. Your mortgage application was denied. It may seem harsh, but it doesn’t always mean that you can’t get a mortgage. If a lender rejects your request for a loan, all may not be lost. There are a few steps you should take after getting denied to improve your chances of getting pre approved in the future.
#1 Find out why you were denied
The mortgage application process is pretty thorough, no matter who you’re applying with. The lender is supposed to provide you with the reasons you were denied so you can use that information get on a better financial footing and re-qualify at a later time. Some common reasons for not getting approved are low credit score, debt-to-income ratio too high, credit issues like liens, judgements or bankruptcy. Notice we didn’t mention no down payment? That’s because there are a number of no or low down payment options available today!
#2 Know your credit
Your credit score plays a large part in determining what types of loans and rates you’re eligible for. Look at your credit report closely and make sure there aren’t any errors. If your credit score isn’t great and it’s the reason you were turned down, don’t assume that’s the end of the road. You still might qualify for a loan with a different lender, especially if you were denied by your bank. Banks don’t always offer every type of loan, so in many cases it’s not you, it’s them.
Mortgage lenders, like Fairway Independent mortgage, generally carry a larger portfolio than your banking institution and have the ability to offer access to different programs that you might qualify for.
#3 Pay off debt
Easier said than done, but some prospective buyers are turned down for a mortgage even though they have a strong credit score. That’s because lenders also look to see how much money you owe each month on credit cards, auto payments and student loans and compare that to how much money you make. This is known as your debt-to-income ratio, or DTI, and it’s an important factor for lenders in determining whether you’re eligible.
Most of the time, lenders want to see a DTI of less than 43 percent. If you don’t fit that profile, there are ways to overcome that number. The best thing to do in this case is pay off debt. Start with the biggest monthly payment and you should be back on track.
#4 Shop around
There’s no obligation for a consumer to take a loan at any point. Talk to different licensed mortgage lenders about the programs and opportunities that are available to you. Work with your lender on a plan to pay off debt or improve credit over a 6 to 12 month period. And take heart—plenty of people are rejected by a lender and go on to successfully buy a home.
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