The Top Reasons Why Your Mortgage Loan Was Declined
With the amount of mortgage loan rejections increasing in the U.S. today, millions are left wondering why their loan was declined, even after all the paperwork was completed and filed. Whether it’s credit history, small down payments, or insufficient assets, there are a variety of reasons for rejecting a mortgage application today.
Americans have been facing a higher average of mortgage loan rejections since the turn of 2010. The most recent statistic from the Pew Research Center at the end of 2015 confirmed that 27.4% of black, 19.2% of Hispanic, and 11% of white and Asian applicants received a mortgage rejection notice. Unfortunately for minorities in America, they continue to receive a higher percentage of mortgage loan rejections than white Americans.
Nevertheless, declined mortgage applications seem to be an all-too-likely reality for millions of individuals and couples hoping to secure a mortgage loan today. Most common mistake, even though is not listed here, is to start shopping for a house before you shop for a mortgage loan. Our first piece of advice would be to review and compare mortgage rates before you fall in love with a home:
Why your Mortgage Loan can be Declined
1. Poor Credit
This is the most glaringly obvious reason for why a lender would not want to take you on as a borrower. Your credit report directly reflects your ability to make payments on time in a fair and sufficient manner. If you have a low credit score, lenders will assume that you are not a trustworthy investor in something as expensive as a mortgage loan.
Today, most lenders consider a FICO score of less than 620 to be too low to approve the applicant for a mortgage.
2. Job Instability
Yes, lenders are going to look at your employment history and dedication to your positions. Lenders obviously look for stability in an applicant, and if you’re someone who has held 12 jobs in the last 6-years, they are going to question your integrity and loyalty. If you hop jobs within the same company, that’s a different story. But if you can’t present a resume that boasts longevity and focus, you may have a hard time securing that mortgage loan.
3. Small Down Payment
Your lender is going to view your initial down payment as your first attempt at investing in your mortgage loan. If you throw down the smallest down payment possible, they are going to question your commitment to the payments. Bigger is always better when it comes to down payments, even if it’s not the kind of payment you intend to supply every month as you pay off the loan.
4. Insufficient Income
A down payment is how you start off your mortgage loan conversation, whereas your income is how you keep the conversation going. Your lender is going to look at your income-to-debt ratio. While you may have enough money right now to cover your bills and mortgage, if you aren’t able to prove it on paper, your lender will probably walk away from the negotiation.
The D word. Everyone has a little debt, whether it’s student loans or auto loans for the new car you just bought. But, when added together, is your debt-to-income ratio higher than 35%? Lenders don’t want to deal with borrowers that come with a lot of baggage. Crosscheck your numbers before you go after a mortgage loan that is way out of your league.
The good news is, if you just experienced a rejected mortgage loan, that doesn’t mean you can’t keep trying. Try different lenders and properties to ensure you accomplish your mortgage loan dream.