This guide will cover the next steps once you get a mortgage loan denial. One frequently asked question from viewers of Gustan Cho Associates is, what are the next steps after a mortgage loan denial? Ethel Matthews of Gustan Cho Associates is a dually licensed real estate agent and loan officer in South Carolina. Here is what Ethel Matthews advises:
When your mortgage application gets denied, it doesn’t always mean you can’t get one. No matter how harsh this move might sound, all is not lost! In most cases, it could be just a minor setback, and with hard work, you might resolve the issue and close on a home.
There are a few steps you can take to see how you can improve your chances of getting a mortgage in your next application. In this article, we will tell you about the common reasons why your mortgage application got denied, plus the steps you can take to rectify the situation. In the following paragraph, we will cover what the next steps after a mortgage denial.
What Are The Common Reasons For Mortgage Loan Denial
This section will cover some common reasons for a mortgage loan denial. There are many reasons why your mortgage application might get rejected. Some of the most common include credit issues. Before qualifying borrowers for mortgages, most lenders must assess their credit history to determine how responsible or risky they are to give them the loan.
Debt-to-income ratio is your total monthly debts divided by your monthly gross income. High debt-to-income ratio is a concern to lenders. If you have too much debt, such that after you make your monthly payments, you are left with almost. The lenders might worry that you might be unable to manage the monthly mortgage payments, so they will deny your loan application.
If, at some point in the process, the loan officer notices issues with your applications capable of hindering your approval, they will let you know or give you some indication that you might not qualify. If the lender denies you the loan, he is supposed to provide you with why so that you can rectify the situation and be on a better financial footing the next time you apply for a loan mortgage.
Do All Lenders Have The Same Mortgage Guidelines
Not all mortgage lenders have the same lending requirements on FHA, VA, USDA, and conventional loans. One lender may have a 620 credit requirement on an FHA loan. But a different lender may do down to 500 credit scores. The lender may deny you the mortgage. Similarly, if you don’t have a credit history, the lenders might still deny you the loan because they don’t know enough about your ability to manage credit. Eric Jeanette of Nonprime Lenders explains why there are common reasons for a mortgage loan denial by lenders:
Generally, a borrower must have a credit score of about 620 to qualify for conventional or 580 for FHA loans. So, if you don’t have such a score and probably have derogatory marks on your credit report,
What happens if you have a change in employment status? Many lenders prefer stable employment and income borrowers, especially those offering conventional loans. So, if you have a history of jumping from one job to another and probably just got a new job, the lenders might view that as a red flag and deny you a loan.
Large and Irregular Deposits Being Reason For Last Minute Mortgage Loan Denial
Borrowers need to avoid large and sudden cash deposits. Here is the thing. A large sum of money in your account is usually a plus when applying for a mortgage. Marga Jurilla, the executive assistant to Gustan Cho NMLS 873293, shares her thoughts about getting a mortgage loan denial:
What should you do after your mortgage application gets denied? It is never pleasant to find out that your application for a loan has been denied. But as we said in the beginning, there are steps that you can take to try and understand why you were denied and how you can prevent it from happening again if you decide to try again.
If you suddenly receive money in your account and can’t explain where you got it, that becomes a problem. And the lender may hesitate to approve you for a loan as they don’t know the origin of the money. Lacks a down payment will be scrutinized, but there is always a solution.
Cash-To-Close Funds For Down Payment
Most mortgage loans require the borrower to have a specific percentage of the property as a down payment. The down payment either needs to be the borrower’s funds or can be gifted funds. Dale Elenteny of Gustan Cho Associates explains the reasons for denying last-minute mortgage loans due to large and irregular deposits.
If a borrower doesn’t have the down payment, it is highly unlikely they will be approved for the loan unless they can have family gift them the down payment.
Here are some steps to take; Find out why you were denied – for starters, when your loan application gets rejected, you will first need to find out why that happened. The loan application process is pretty rigorous, to say the least, as your application is thoroughly scrutinized.
Mortgage Loan Denial Due To Poor Credit
Examine your credit – your credit score plays a significant role in determining your eligibility for the loan, the type of loan you qualify for, and the rates you get. You must examine your credit report closely for any errors affecting your eligibility. Also, please get to know your credit score beforehand and take action when necessary to ensure it remains strong.
Over 80% of our clients at Gustan Cho Associates are folks who could not qualify at other mortgage companies or got a last-minute mortgage loan denied due to lender overlays or due to poor credit scores.
Remember one thing if your credit score isn’t that great and is why your loan application was denied, don’t assume that all is lost or it is the end of the road for you because it’s not! You still have options. You can either work on improving your credit score and then try again shortly or try for a different loan, probably one with relaxed credit score requirements. Also, not all lenders offer the same type of loan or requirements, so you can always try another lender when you get turned down by one.
Mortgage Loan Denial Due To Debt-To-Income Ratio
Work on reducing your DTI – if the loan application was denied due to high debt payments, you must devise a payment plan to clear many debts before applying for the mortgage again. The thing is, too many debt payments reduce your ability to manage another credit facility. Ideally, the DTI ratio should be lower than 36% and 43% higher.
High debt-to-income status – the debt-to-income (DTI) ratio shows the lenders the monthly debt payments you make compared to the amount of money coming in as income.
If it is anything other than this, you must work on reducing the DTI before trying again. It won’t be easy, but it is doable! You can try a consolidation debt that might help you clear your debts, or you may try looking for a well-paying job or negotiating a raise in your current job. All this will improve your DTI ratio. The shop allowed for other types of mortgages – if you were denied the loan due to poor financial or credit information, you can always seek a different mortgage that would be friendly to your situation.
Getting a Mortgage Loan Denial Because You Do Not Qualify For a Particular Loan Program
You see, there are types of loans out there, where some don’t have strict financial or credit history requirements. For instance, while conventional loans have rigorous requirements and many applications get rejected, you can try an FHA loan instead, which is government-backed and has relaxed requirements. This means you can qualify for a loan regardless of your current situation.
There are also other Non-QM loans that you can qualify for even when you get rejected for a conventional loan. So, all is not lost! Save for a larger down payment – a down payment may also easily lead to your application being rejected, especially if you don’t have enough.
If it is the reason why your mortgage application was rejected, you can either try for a smaller loan or propose to increase the amount. If you had your eyes on a particular property and didn’t want to pick another one, increasing your down payment amount would be the way to go. So, maybe try looking for help from a relative or any other way! Just make sure that you have enough down payment before trying again.
How To Get Approved For a Home Loan After Mortgage Loan Denial
The process of mortgage origination comes with several highs and lows. When your loan application gets denied, never get discouraged, as there are things you can do to try and improve your situation, which sets you up for success the next time you try again. You need to understand what went wrong or why you were rejected and take steps to address the issue. You can also try other loan options. You never know; you might qualify! Talk to your mortgage broker today to explore your options.
Over 80% of our clients are borrowers who have been gotten a mortgage loan denied at other lenders or folks who could not qualify at other mortgage companies because the lender did not have loan programs best suited for them.
If you need to get approved for a home loan after getting a mortgage loan denial, contact us at Gustan Cho Associates at 262-627-1965. Text us for a faster response. You can also email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays. Gustan Cho Associates are mortgage brokers licensed in 48 states, including Washington, DC, Puerto Rico, and the U.S. Virgin Islands. We have 210 wholesale lending partners, including dozens of no-lender overlays lenders of government and conventional loans and dozens of non-QM and alternative lending mortgage programs.
