Being denied for a mortgage loan can be a huge disappointment, but that doesn’t mean all hope is lost, according to Christa Comeaux, Mortgage Loan Officer with Lakeside Bank. She says the key is being aware of what factors affect the decision and making sure you’ve addressed any issues in these areas.
“Loan decisions are made on an individual basis,” says Comeaux. “A home mortgage is typically the most substantial loan an individual applies for, so there are certain financial criteria that must be met. Several elements are looked at together to determine if an application is approved or denied. The good news is, no denial is etched in stone. Just because you are denied for a loan today doesn’t mean you are denied permanently. Once you know why your loan application was turned down, you can take steps toward approval.”
Comeaux says there are some common reasons home loans are denied, but each of these can be corrected to gain loan approval.
Not enough income
It’s determined that you won’t be able to make the house payment based on your current income. If you’re on the cusp of affordability, you may be able to try to qualify for a lower interest rate. Another option is to choose a less expensive home. “Wanting to live in a five-bedroom house and affording it are two different things,” says Comeaux. “Find a house you not only love but can also afford.” A few other options: get a co-signer who meets credit requirements; reapply later, when your income is higher; or search for a loan-assistance program that you may qualify for. Your lender should be able to help you find loan programs with flexible qualifying guidelines.
Low house appraisal
There are several reasons why an appraisal may come back too low – offers from multiple parties, declining market values and seller overpricing are a few. A low appraisal isn’t necessarily a death blow to the loan application. In many cases, renegotiations can iron things out. “The buyer can ask the seller to correct the affected problems, or an escrow account could be set up so renovations can be covered after the sale is complete,” explains Comeaux. “The outcome depends on the situation.”
It matters how much money you make, but it also matters how much income you have tied up in other obligations. “An overburden of debt may hinder your ability to make mortgage payments,” says Comeaux. “If you are in this situation, you can reapply once your debt has been reduced, or you may also be able to get qualified for a less expensive house.”
Problems with down payment and closing costs
If you’ve got good credit, a stable income and low debt-to-income ratio, you should be in a good position to buy a home. Unfortunately, some consumers get derailed by the down payment and closing costs. “In this case, talk to your lender about potential options,” says Comeaux. “It may be necessary to postpone buying a home so you can save for these costs, but it is also possible that there are loan assistance programs that can pick up much of the initial burden, especially if you are buying a home for the first time. In some situations, these costs could be shared with the seller or added into the loan amount.”
Credit report problems As soon as you decide to start house hunting, Comeaux says it’s a good idea to get a copy of your credit report. “You’ll avoid surprises, and if you find errors, you can get them corrected with the credit bureaus. And if you discover that your credit is less stellar than you thought, you may want to consider working out debts before you expend too much energy on searching for a new home. Comeaux adds that another way to avoid a mortgage loan denial is to get pre-qualified. This will identify any potential reasons for denial and let you know how much home you can afford before you start looking. “This minimizes frustration and disappointment throughout the process and will help speed up your final approval. And with today’s low interest rates, home mortgages are more affordable than ever. Find a lender who will answer your questions and work with you to put together a home loan that fits your needs.”
For more information about home loans, call Comeaux at Lakeside Bank,