When Loans Get Rejected |
|
It takes one rejection of an application for mortgage financing by a lender to shatter dreams of owning a new home. Should your loan request be denied, find out why it was and how you can avoid repeating the mistakes in the future.
Bad credit reports featuring frequent late charges, past due accounts, judgments and bankruptcy can reduce chances of loan approval. Guidelines on debt ratios and income requirements are one thing but tolerance of bad credit record, a different story. Low loan-to-value ratios and debt ratios cannot compensate an unsatisfactory credit history. Lack of an established credit history can cause problems in loan approval. Even without negative aspects, no record of timely loan repayment or charge accounts is as bad. In such a situation, there is hope of a non-traditional credit history. This involves the lender depending on utility companies, landlords both past and present, among other sources to verify your timely, consistent repayment. If this hasn't occurred to your lender, suggest it. The ratio of the loan to the sale price or appraised value of the property whichever is lower, is one of the lender's considerations. Appraisal of property being substantially lower than purchase price, the loan-to-value ratio (LTV) may be more than the lender can legally approve. For a maximum loan amount, 90%-95% of the purchase price, a low appraisal could make the desired loan too high. Here your options depend on the reasons for the low valuation. Bring the Cards to the Negotiation Table Purchase price higher than prevailing prices in the area makes it possible for you to renegotiate the price at a level closer to the market for the lender to accept and approve the loan. Financial information and verification of deposit may cause the lender to doubt your cash being enough for a down payment and cover closing costs. These funds are more likely to come as a relative's gift more than borrowing as it requires no repayment. Solutions also include convincing the seller to take back a second mortgage, reducing the down payment required, provided you qualify with additional loan payments, and the seller's payment of some closing costs like origination fees. Finally the solution could be merely waiting, assuming you set up a savings program. To assess your repayment ability, lenders check your monthly income against your proposed mortgage payments, as well as monthly debt and loan repayment installments. 28% of your gross monthly income should not be exceeded by your mortgage payment, while your total debt inclusive of mortgage payments and other installments should be under 36%. For FHA loans the percentages are slightly higher. A very good credit card report which reveals that you are already maintaining the equivalent housing expense through rent or mortgage payments, may put you in a position to convince the lender. This demonstrates how complete disclosure can be advantageous to you even if not apparent at the time. In case of change in personal circumstances since making the loan application, inform the lender. Impending salary hike, bonus or new job for you or co-borrower can improve your chances. But they must be documented and verified for the lender to reconsider the loan application. A Rejection Is Not Your Last Chance. One lender's rejection need not deny you home ownership for good. There's a lot you can do to improve your chances. Some of these measures may be done quickly while some may take time. However, most problems can be corrected. Take your time and analyze the possibilities why your loan request was turned down and do whatever is necessary to rectify that problem. |
