We’re in this process with you, for better or worse, so if your mortgage application gets declined, we want you to know that it’s not the end. Sometimes it’s best to be prepared for the worst-case scenario, and today we’re going to talk about what to do should this happen to you.
First, let’s look at common reasons why your application would be denied.
Debt-to-income (DTI) ratio
Lenders compare your monthly debt payments and income to determine your DTI. This number, both before and after taking a mortgage on, is extremely important, and if you have a high DTI, your application could be denied.
Lenders often look at a merged credit report (including info from all 3 major credit bureaus Experian, Equifax and TransUnion) to judge your credit, and a low score could result in denial.
Other Credit Issues
Along with your calculated credit score, negative pings on your credit like past due accounts, collections reports, foreclosures or bankruptcy documentation can cause rejection.
If you recently changed jobs, especially a career change or non-commissioned to commission-based work, you may receive a denial due to instability.
There are a lot of ways around large down payment requirements, but a larger down payment might increase your chances of getting approved.
If you find yourself in this situation, reach out and we can help you work through the following next steps, because hope is not lost, and we can still help get you approved.
First, contact us! You’ll probably receive an adverse action letter from your lender with the reasons your application was denied, but if you have any confusion about what it says, be sure and reach out to us and we can look.
We’ll look at other mortgage types. If your application was denied because of a credit issue, we can research different types of mortgages that may better suit your situation. For instance, if you applied for a conventional mortgage, we could look at getting you approved for a government-backed FHA loan instead.
Next, we’ll work on lowering your DTI. If your monthly debt payments are a large percent of your income, we need to work to lower that as much as possible. It’s not always easy but paying down any credit card balances is a good place to start and can have a huge impact. We can also look at completely paying off a debt, consolidating, or even asking for a raise at work to increase your income.
While we’re at it, let’s work on your credit. A minimum credit score needed for your loan can vary from 500 to 700, which is why shopping around for a good fit is so important. Try to have several open lines of credit; just make sure you are current on all payments and keep balances low and manageable.
There’s a lot that goes into applying for a mortgage loan, but we don’t want you to be discouraged if you’ve gotten denied for that first loan. Your Rapid Mortgage team of loan officers is ready to help you on this road and take on some of the burden of stress!