How do you prepare for a mortgage application? What do you do if your mortgage application is denied?<\/p>\n
As of August of 2011 lenders rejected about 50% of received applications for mortgage refinance (according to the Mortgage Bankers Association).<\/p>\n
We recommend to always know and improve your credit history before<\/span> you apply for a mortgage or refi. – the key is to improve your credit score.\u00a0 If the mortgage is still rejected then we look at the lender – was this because they are the wrong type of lender or is there something else going on?<\/p>\n If your mortgage application is denied, always find out exactly why the lender turned you down.\u00a0 The law states that you have the right to receive a disclosure letter – but you want more than those general letters – so use the fact that you have the right of disclosure to find out the ‘real’ reason from the front person you worked with.<\/p>\n The best way is to take the disclosure letter to your loan officer and ask for an explanation that makes sense to you, something that you can do something about.\u00a0 The front person is a great source of answers as to how your loan is perceived at that institution.<\/p>\n 1) Appraisal<\/strong><\/span> was too low to back the amount of loan requested – declined due to LTV (loan-to-value). Lowball appraisals kill many purchases and refinances, but if you are certain that it is a low appraisal it is worth reapplying with a different lender.\u00a0 Try to find a mortgage lender that is local and uses local appraisals to ensure that they know the market value for your home.\u00a0 One of our clients had an appraisal at $1.2M and yet it came in at $2.1M with a local appraisal – not a small discrepancy between appraisals!<\/p>\n 2) Credit history problems<\/strong><\/span> should always be resolved before you apply because some credit fixes can take time (6-12 months).\u00a0 If your credit score is slightly lower there may be quick fixes like paying off credit card balances but even they will take 3 months before they show up in all three credit scores.<\/p>\n Some lenders will do a rapid rescore to get a new score soon after you know that the three credit history companies receive your changes – but this can still take time.<\/p>\n 3) A too high Debt-to-income ratio<\/strong><\/span> will require that you pay off debt so that your monthly payment obligations are low enough compared to the income you earn.\u00a0 Although unusual some times we find that clients have not included all of their income. In most cases, we help clients select the best assets that will be sold to pay off debt and lower their monthly debt payments.<\/p>\n Most lenders follow Fannie Mae (45%) and Freddie Mac guidelines some have more stringent requirements (35-38%).\u00a0 Forty-five percent is a very high DTI and we recommend that despite the allowed DTI you not exceed 35% DTI.\u00a0 If you are trying to get a mortgage with a DTI above 35% consider carefully if you have the capacity to maintain this debt load if\u00a0 you have an emergency or unexpected financial shortfall.<\/p>\n 4) When selecting your mortgage consider the size of the lending institution.\u00a0 Often we find that community banks and credit unions<\/strong> have more flexible underwriting standards.\u00a0 This is particularly important for those who are self-employed.<\/p>\n 5) Do not take mortgage rejection personally<\/strong>.\u00a0 At times it is not ‘the right time for you’ to refinance or purchase a home.\u00a0 It will be the right time for you if you take the opportunity to manage your finances, pay off debt responsibly and keep adding to your earning history.\u00a0 Always get your finances in order 6 to 12 months ahead if you are planning to buy a home.\u00a0 For many, this is their largest debt they will obtain in their lives.<\/p>\n Edi Alvarez, CFP\u00ae www.aikapa.com<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":" How do you prepare for a mortgage application? What do you do if your mortgage application is denied? As of August of 2011 lenders rejected about 50% of received applications for mortgage refinance (according to the Mortgage Bankers Association). We … Continue reading Why might you not qualify for a mortgage?<\/h2>\n
What reasons are there for rejecting a mortgage application:<\/h2>\n
\n<\/sup>BS, BEd, MS<\/p>\n