Lenders deny mortgage applications for a multitude of reasons but oftentimes declinations are the result of people choosing the wrong house or the wrong loan package. Your dream of home ownership or plans to lower your existing mortgage debt need not die as the result of a mortgage declination. With time, money and a little bit of leg work you can often get a loan approved.
Lenders have minimum credit score requirements for loans and if you fall short of your lender's base range then expect your application to be rejected. However, you can take steps to resolve your credit woes and boost your score. Pay off your past due debts, although it usually takes a few months for the score to rise. High balances on credit cards also hurt your score so paying more than the minimum due will give you a boost. Alternatively, you could ask a friend or relative with good credit to co-sign the loan. Co-signers assume equal responsibility for settling the debt so willing co-signers are sometimes hard to find. However, a co-signer or a few settled debts could revive your hopes of financing a home.
Typically, you cannot finance a home if the loan amount exceeds the home's value although some lenders and investment firms are prepared to arrange work out loans with upside-down homeowners. Under the federally backed Making Home Affordable program you can refinance Freddie Mac and Fannie Mae owned loans for in excess of 100 percent of the property value. If an appraisal for a home purchase comes back short then you can use the low value as a bargaining chip to drive down the price. If the seller does not want to play ball find another more appropriately priced home to buy.
Debt To Income
Many people fall foul of underwriting guidelines because they are struggling to stay on top of their current bills. Lenders use a calculation called the debt-to-income ratio to determining the percentage of your income that you spend on monthly debt payments. Generally, you cannot get a loan if your DTI exceeds 45 percent. You can get around this problem by paying off existing credit card debts.
Mortgage closings typically involve closing costs and when you are buying a home you normally have to make a down payment. Regardless of your credit, if you cannot cover these costs then you cannot get the loan. However, the Federal Housing Administration insures home loans on which you only need to make a down payment of 3.5 percent of the purchase price. Compare that with the 20 percent down payment you need for a conventional mortgage. With FHA loans, you can also ask a relative to gift you the money you need for a down payment. Some lenders even offer 80/20 loans, which involve you taking on two loans that amount to 100 percent of the home's value. Therefore, ask about alternative loan programs if you cannot qualify for a conventional mortgage.
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