It’s a moment you hope never comes, but if your mortgage loan application is denied, take a deep breath and remember that it’s only a setback.
The first step to recovery is understanding what went wrong. You can glean some insights by reviewing the denial letter in detail. Lenders typically provide the exact reason for the non-approval because it’s the law.
Poor credit, imbalanced debt-to-income ratios and your household income level can all be factors in the decision.
Poor credit
If the reason for your denial is due to your credit score, there’s good news. You can bring that score up over time if you employ the right strategies.
First, take a long, hard look at your credit report and pinpoint the weak spots. Do everything you can to address them. Some won’t require much work on your end other than a call. Inaccurate information due to identity fraud, for example, can be corrected by the credit bureaus upon request and verification.
Paying down debt, getting back on track with missed payments and not opening new credit cards are some major steps to take, although they will require a little more patience.
Insufficient income
The next time you apply for a loan, make sure that you submit every form of income, including money from a side job, social security income, disability payments, alimony payments and other income streams.
A complete picture of how much money is coming in will help your cause and elevate your application. Remember that not all mortgage programs are created equal. So, it’s vital to work with the right team that can find a mortgage product that works for your unique situation and goals.
Debt-to-income ratio
This ratio represents how much debt an applicant carries in comparison to their income. When someone has a high ratio, it means that their debt level is too high. To calculate the debt-to-income ratio, simply divide monthly debt/payments by how much you make each month.
You can work toward improving your financial footing by reducing this ratio by not taking on new debts, maximizing monthly credit payments and growing your income in some form. Lenders will look for a favorable ratio, but that’s not the only consideration. Improving your credit score will also increase your chances of getting approved the next time you apply for a loan.
Getting denied for a home loan can be discouraging, but keep everything in perspective. Do not rush out and apply at several other places right away. Instead, take a step back and evaluate the reason for the denial. Then, create a plan to minimize this barrier to set yourself up for success the next time around!
We would love to assist you with your next home loan. Contact us today to get started!
