Nobody wants to get denied a loan, but it happens all too often. This list is coming from my experiences. I hope that you are able to use my experience as a guide to help you in avoiding loan denial. Again nobody wants to get denied a home mortgage loan. And before purchasing a home I recommend you read my previous post “are you ready to buy a home”. If you get denied, it is always good to know the reasons why so you can examine and fix the problems.
The main 3 reasons a person gets denied a mortgage is this:
1. Credit- Having poor credit history. I can’t emphasize enough how important it is to take advantage of a free credit report annually and look through any discrepancies. Know where you are at, what you can fix and if you don’t know where to begin I suggest going to a trusted lender that can help give you advice or put you in the right direction. This needs to be done AT LEAST 3-6 months prior to wanting to purchase a home.
2. Debt to Income Ratio- Your ratio is too high! This is the percentage of your monthly gross (pre-tax) income that is used to paying your monthly debt payments. The “safe” zone is no more than 38% of your monthly income toward your debt. Yes there can be some stretch to this and ratios can be higher (45%) but also depends on credit, payment histories, and specific loan programs. This can be discussed with a lender as well. This is just a guide, you would want to divide your recurring monthly debt to your total gross monthly income payments. (ex: $3000/26000 = 12%) Here is a good calculator to help you. If you are too high, start paying down your debt!
3. Insufficient Collateral- Now this only applies for refinancing. This is what we have been coming across in the past years and is getting better. It is the value in your existing home, your property may not appraise for enough value to refinance. Again this is something you can take a look on Zillow for a good estimate, but please note that even Zillow can be inaccurate, it is just used for a guide. Ultimately this comes from an appraiser.
3. Insufficient Funds to close- This is for Purchases, this is why I put #3 twice. If you don’t have enough money for down payment and closing costs, not only having enough money but PROVING you have enough money. NO CASH DEPOSITS (if possible, if not be prepared to prove where funds came from)!!! Try not to have “mattress money” this is hard to document (possible, but try to avoid)! Do you have enough money in the bank to show you can pay your closing costs. This is not for every case but for the majority.
Again, this is just a guide off of my experiences. The best thing you can do is if you “think” you are ready to purchase a home, find a lender, meet with them, run your credit, discuss your goals and then make a plan! And if you get denied, just know that it doesn’t mean you can “never” buy, it just means your plans get a little delayed. There are ways to fix these problems.
If you have any questions please give me a call or email, I am always here to help! Click here if you would like to complete a secure online loan application.
Cheers~
Ray Williams
Summit Mortgage Corporation
303-779-0591 ext. 101
