You’ve found a house that seems perfect for you and you’ve applied for a mortgage to buy the home. Then the bad news comes: Your lender has denied your mortgage application.
Once you’ve gotten over the sting of rejection, what can you do to get your housing search back on track and improve your chances of being approved for a mortgage the next time you apply? There are a few steps you can take if your application is denied that will hopefully get you approved during the reapplication process.
Research Home Loans: Less than Perfect Credit, Little/No Down Payment and Other Options
In some cases, it’s not you, it’s the mortgage you tried to get. Some mortgages have tougher requirements than others.
If you were turned down for a conventional mortgage or for a mortgage that requires an excellent credit score, you might want to look for home loans designed for people with less than perfect credit or that require no down payment.
Home loans with less than perfect credit or little to no down payment options typically include government-insured programs such as FHA, VA or USDA loans.
When researching loans for people with fair or poor credit or lenders that will accept a low- or zero-down-payment mortgage, consider all of the requirements, as well as what’s expected of you as a homeowner.
Some programs are only available to certain groups of people, such as those who are in the military or who served in the armed forces, or to people looking to buy in certain areas of the country.
Work on Improving Your Credit
If you know why your mortgage application was denied, you can focus on improving the issue. For example, if a lender turned you down because they thought your credit score was too low, you can work to raise your score. You can do that in a few ways:
- Pay all your bills on time.
- Be careful about opening new credit accounts.
- Pay down your debt.
- Use credit. Some people have low or non-existent scores because they don’t have a credit history at all.
Work on Paying Down Other Debt
Another reason why a mortgage lender might deny your application is if they think that you have too much existing debt. Lenders often look at something called a debt-to-income ratio. It’s the comparison between how much you earn and how much you need to pay toward obligations each month.
If you earn $1,500 per month and have $1,000 in debt payments to make (not counting your mortgage), a lender is likely to turn down your application. Although there are some exceptions, lenders are usually looking for a debt-to-income ratio lower than 50%.
If you have other debts, such as student loans, car loans or credit card debt, you might want to focus on paying those off before you apply for a new mortgage.
If you’re not sure why a lender turned down your mortgage application, it doesn’t hurt to ask. More likely than not, a lender will be happy to let you know what the problem was and might direct you to other mortgage options or give you tips to help improve your application next time. Contact the experts at Mortgage Investors Group for information regarding the type of mortgage that is best for you.
