Application for your mortgage denied? Don’t panic. It happens a lot! In fact, about 1 in 2 mortgage applications get denied for a refinance, and about 1 in 3 get denied for a new mortgage.
The most important thing to do after your mortgage is denied is to find out exactly why…
There are 3 main reasons a mortgage application may be denied: the loan-to-value ratio for the property, your personal credit score, and your debt-to-income ratio. Each is very different and must be corrected in it’s own way.
Mortgage Denied Because of A Loan-to-Value Problem?
Make sure the property appraisal was done right. A low-ball appraisal can easily trigger a denial. You can’t hire your own appraiser redo it, but you can ask for an appraisal rebuttal. But most people choose to contact a new lender which will result in a new reappraisal of the property.
Just remember to act quickly. The denial will not affect your credit, but the hard credit inquiry will. As long as you initiate the next application within about 2 weeks, the FICO system will recognize the two back-to-back credit pulls as rate shopping – since they are for the same type of loan – having less of an effect on your score.
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Mortgage Denied Because of Your Credit Score?
If it turns out your mortgage application was denied because of issues with your credit, you’ll get a denial letter explaining exactly what the issues are. If the information in the letter is vague, reach out to the loan officer you were working with to get more details.
If your FICO score is too low because of charge-offs, late payments, liens, or collections, reach out to NCES right away to talk about how we can help you improve your credit score in as little as 3 – 6 weeks. Just one round of professional NCES credit restoration could give you a 30 to 50 point bump in your credit score, making it possible to reapply for your mortgage very quickly.
You may also want to investigate if you qualify for an FHA loan – which are available for borrowers with credit scores as low as 580. There are special circumstances, but it doesn’t hurt to find an FHA lender near you to ask in an FHA loan is right for you.
Mortgage Denied Because of Your Debt-To-Income Ratio?
Your debt-to-income ratio is an important part of your mortgage application process. Why? The lender wants to make sure you have the financial means to pay back the loan!
If your debt load is too high, and you have the opportunity to do so, simply paying off some of your debt can get you approved for that mortgage.
How much debt is too much? Most lenders follow the Fannie Mae and Freddie Mac requirement of no more than 45% of your monthly income should go towards paying off debt. To calculate your debt-to-income ratio, divide your monthly debt payments (including the projected mortgage payment!) by your pre-tax (gross) monthly income. The number on the calculator should be less than 0.45. If it is more than that, you’ll have to find a way to increase your income and/or reduce your monthly debt payments.
Keep in mind, though, that many lenders have their own debt-to-income ratio requirements in addition to those established by Fannie Mae and Freddie Mac. So, if one lender turns you down because of your debt-to-income ratio, contact other lenders to see if their requirements better match your situation.
Don’t let a mortgage denial stand in your way of achieving your dreams! NCES is here to help you in any way we can when it comes to improving your credit. You can schedule a free consultation today to see how quickly we can help you see results.
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If you have any questions, please give us a call at 770-952-5168 or contact us online.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.