Did Your Lender Reject Your Mortgage Application? 3 Reasons Why

If you know a homeowner, or are one already, you know people who have had their mortgage loan applications approved by some sort of bank or lending institution. What you may not hear about as often are the stories of those who have had their mortgage applications rejected.

While the market is easing up a little bit, it’s definitely harder than it was before to get a loan for a home purchase. In 2010, lenders were only accepting about 55% of the applications presented to them. While that number has gone up, it’s still important to recognize the warning signs of a potential rejection – and to know what to do to avoid them.

Your Income Documentation isn’t Clear

One of the most important factors when looking at a home loan application is proof of income. Your lender won’t care how wonderful your credit score is if you don’t prove you have a consistent, reliable income. You need pay stubs, tax records, and anything else you can show to prove you are earning regularly.

There are some related red flags to consider, too. The bank doesn’t just want to see a job. The bank wants to see a consistent job – preferably in the same industry and/or the same location for a couple of years. They don’t’ want to see tons of job-hopping.

You Messed Up Your Debt-to-Income Ratio

A lot of people go out and get pre-approved for a mortgage and then run out and make significant changes to their lifestyles and spending patterns. This is a huge no-no as well. If you have a 10% debt-to-income ratio and then spring up to 50%, the bank is going to wonder why you have had such a huge debt shift and how you’re going to manage paying your mortgage.

You can avoid this by avoiding major spending patterns – especially avoiding credit cards – between your pre-approval and actual purchase. This will ensure the underwriter doesn’t see changes that cause him to retract your loan offer.

Finally, don’t close a credit card account just because you don’t use it. That “open” amount contributes to your debt to available credit ratio and removing available credit makes it look like you owe a higher percentage of your available funds.

Child Support and Alimony Payments

Surprised to see this? Lenders look carefully at everything you owe. Child support and alimony payments are considered debts. If you’re making timely payments, you probably won’t have an issue; but if you’re behind, you may have trouble getting your loan approved.

Of course, there are plenty of things you can do to fix your credit and history to get approved for a loan. We’ll cover some of those in future posts.

Ready to move forward with the loan process? Contact Sam Fine for details on how to get started.