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Top 5 Reasons Mortgage Applications Get Denied
Posted by Christine Owens on June 14, 2017

Top 5 Reasons Mortgage Applications Get Denied

guarenteeNo home buyer wants to be turned down for a mortgage but it can happen from time to time.  If you have ever been turned down for a mortgage or you want to know everything you need to do to avoid being turned down for a mortgage, there are some common reasons people get denied.  It is important to know that nothing is set in stone until the final contracts are signed and the keys are in your hands. Even if you have been pre-approved for a mortgage, your loan could ultimately get denied before closing.  This may come as a shock to some home buyers because they assume that a pre-approval is a guarantee, but it is not.  In fact, a mortgage getting denied is one of the most common reasons a real estate deal falls through.  Know what the top 5 reasons mortgage applications get denied are and you will be able to avoid common pitfalls so that you can have a smooth home buying experience.

Top 5 Reasons Mortgage Applications Get Denied

  1. Credit Score
    • Not everyone with a lower credit score will get denied. But, if you have a low credit score/history, you may get denied.  It is not just the score but the specifics on your credit history that could reflect negatively on your ability to pay your mortgage.  If you have late mortgage payments on your credit report, foreclosures, short sales, bankruptcies, etc. the lender may deny your application.
  2. Too Much Debt
    • Lenders are ok with you having debt like student loans, car payments, etc. But, if you have too much debt such as large credit card debt or a bad debt-to-income (DTI) ratio, you may be denied a loan.  The reasoning is that if you add to your debt, you may not be able to repay everything and they don’t want to see you default on any of your lines of credit – particularly not your home loan.
  3. Income/Affordability
    • One of the most important factors in your ability to qualify for a home loan is your income. If your income is insufficient for the size of the loan you are trying to qualify for, your mortgage may be denied.  Additionally, if your income comes from a wide array of places, your income is not steady and fluctuates often, or you are self-employed, verifying your income may be challenging.  A lender wants to see steady, consistent, reliable income or they may deny your loan.
  4. Down Payment
    • Lenders see a down payment as a show of commitment and an investment in the home you want to purchase. The larger your down payment, the more secure the lender will feel lending you the money.  Though there are many different loan products and programs where down payments can be very low, some lenders may deny your loan application if you do not have a sufficient down payment.
  5. Employment History
    • Lenders like to consistency in all areas – credit score, income, and employment history as well. Someone who is stable and trustworthy for a loan is often seen as someone who does not bounce around form job to job.  Lenders like to see that you have been at your job for at least two years so that they feel safe that you will continue to earn adequate income to repay your loan.

 

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