When you consider that they make you provide everything short of a blood sample to get a home loan, when you get declined a loan it can feel like an emotional throat punch. The trick is to not give up!
You need to understand why you were declined and strive to overcome each issue, many of which can be cleared up within 60 days or less, and even some can be cleared up the same day! Just because you were denied a loan today doesn’t mean that tomorrow you will also be denied. Further, every time you are denied a home loan they will provide a letter to you stating the reasons why.
For a seller it is important to understand the reasons why someone would be denied a home loan so that you can screen potential buyers and make sure that you avoid buyers who haven’t met certain criteria.
Here are the most common reasons why your home mortgage would be declined:
1 – Poor Credit History
This is the number one way for a lender to see how risky of a borrower you are. Are you going to pay your bills, or will you leave them high and dry? Your score helps them determine this, but when they pull your credit they also get to see any bad marks on your history. This could include bankruptcy, foreclosure of another home, late payments, collections, or many other red flags. Even with a few of these red flags you should be able to get a home loan if your FICO score is above 620.
The average American has a FICO score of 687. Your credit score is easily attained through a federally mandated website, www.annualcreditreport.com. When you find out all the bad marks on your report you can start taking steps to remove them.
2 – Low Income/Documentation Issues
The other big piece of the puzzle is how much income you earn. It is one thing for you to know in your head that you can afford a monthly payment, but you must also document your income on paper. Keep all your tax documents each year, as these will be required (at least the past 3 years).
Once you make an offer don’t make any payments on anything, and I do mean anything, without running it by your lender first. Further, don’t make any deposits to your accounts without clearing them with your lender. Documenting your payment and deposits might seem as if it won’t be a large obstacle to overcome, but a small deposit of $100 can delay a transaction by weeks if it isn’t documented correctly to the lender.
Your lender will help you know what documentation you need. If you need a referral for a good lender, give me a call so I can point you towards my favorite lenders!
3 – Not Enough Savings
If you don’t have enough saved for a down payment a lender will see you as someone who is unable to save. In other words, you are higher risk. The more down payment you make the better every aspect of the loan process will be for you. Even saving as little as 3% of the price of the home will make a HUGE difference in your loan application process.
4 – Problems With the Home
It might not have anything to do with you at all. It might be that the property isn’t worth enough to justify your purchase price. While this is a HUGE obstacle for most Realtors® and their clients, I am an Appraiser and I speak Appraiser-ese. I am also an MCNE (Master Certified Negotiation Expert) and can help ensure that a low appraisal doesn’t destroy your purchase, and that everything continues forward.
5 – Not Enough Employment History
Stable employment is a key factor in proving to the lender that you are a safe bet for a home loan. Many lenders require you to have 2 years of consistent employment before they will approve your loan. Keep your pay stubs as they will serve as your proof of employment.
These are the most common reasons, but not the only reasons. In any case, if you’ve been denied a home loan and want a second opinion we can help you find the lenders that we trust to give you the most thorough and accurate information to get you back out there shopping for a home.
Don’t get discouraged and throw in the towel. Being patient and a little elbow grease on our end can make a huge difference for you, and set you up to be shopping within a few weeks.
