One of the biggest challenges you could face during a home buying process is getting your request for a mortgage rejected by the lender. Such rejections could mess up your plan and delay your home buying significantly. There are several reasons why your mortgage request could get rejected by your lender. It could be due to a knowledge gap in the credit history or mortgage process. Whichever reason was given for your mortgage rejection, it is best to consult with a mortgage assistance company and seek help on the way forward.
Reasons For Mortgage Denial
Getting a mortgage rejection doesn’t mean you can’t own a home or get another mortgage pre-approval. You may have to rebuild your credit gradually.
Meanwhile, here are some reasons why your mortgage pre-approval may get denied.
A low appraisal is one of the most common reasons for a mortgage rejection. If the mortgage value is higher than your property’s appraisal, there is a high chance of rejection.
High Debt-to-income (DTI)
Before you can be given a mortgage, your monthly income is reviewed with respect to your debt-to-income (DTI) ratio, or monthly debt. Ideally, your mortgage payment should not exceed 28% of your gross income monthly. The same thing applies to your DTI. Your DTI shouldn’t exceed 36%. If your DTI is high, you will likely get a rejection.
Your chances of a mortgage rejection are higher if you continually miss your credit card payments or make late payments. If this is the case, your loan denial can’t be reversed until you’ve significantly worked on your credit score.
5 Ways to Improve Your Chances of Getting a Mortgage Preapproval
After a mortgage rejection, the best thing to do is find ways to improve your chances for a mortgage pre-approval. Here are five ways to boost your chances for a mortgage pre-approval.
Know Where You Stand
It is important to know where you stand after a mortgage rejection. It is wise to review your credit report to discover what the issues might be. If building your credit is what needs to be done, calculate how much you owe overall and how you can go about repayment. You might need to consult a professional on the proper steps to take.
Fix the Mistakes Quickly
As soon as you get a rejection for your mortgage, check for any false information on your credit score. If any is found, contact the credit reporting agencies immediately. Be rest assured that your credit report will be updated quickly because mortgage companies usually want to close out on loans on time. Therefore, these credit agencies are paid to run all updates promptly.
Settle Your Debts
To improve your chances of a mortgage preapproval, it’s best to settle your debts. Knowing which debts need to be settled first is important. For example, debts such as that of delinquent collection accounts affect your credit score more than those owed to your credit card company.
Show Consistent Income Over Time
Having a reliable source of income is one of the most effective ways to boost your mortgage chances. You might have to present two years’ worth of your bank statement and tax returns to your mortgage lender to show how consistent your income is.
So to boost your chances of getting a mortgage preapproval, you need to get a job or a legitimate source of income. Without this, it is almost impossible to stop the rejections from coming in.
Control Your Spending by Creating a Budget
To lower your debt-to-income ratio, it is important to control your monthly expenses. Creating a budget will help you place a scale of preference on your expenses. With this, you spend only on important things, and you save more to pay off debts.
Just because your mortgage pre-approval was denied doesn’t mean you should get discouraged and not consider getting a mortgage again. You only need to get back to the drawing board and start all again. To help you prepare better, you can consult a professional. They can even provide you with alternative options available to solve your immediate need. You will also be advised of ways to boost your chances of mortgage preapproval.
You may have to build up your credit for years by financing little projects or getting a credit card with minimal limits. After several months or years, your efforts will pay off, and you might qualify for the mortgage you need.