To purchase a home, you typically need a mortgage. However, mortgage applications don’t always get approved. This can be a cause of great financial stress for many.
When your mortgage gets denied, you need to identify the reason for denial so you can figure out your next move. Thankfully, you can trim down the potential causes by looking at our list below.
Reason 1: High Debt-to-Income Ratio
Your debt-to-income ratio is the amount of monthly debt payments you make in relation to your gross monthly income. When you apply for a mortgage, most lenders will use your debt-to-income ratio to decide if you can manage your mortgage payments.
Mortgages are typically the largest debt people carry, so your lender will want to ensure you are capable of paying off your mortgage on time each month.
Lenders want a debt-to-income ratio of up to 31 percent, but they will typically approve a mortgage when your ratio is below 41 percent.
If your debt-to-income ratio is too high, you can continue paying off your unsecured debt, like credit card debt and personal loans, to lower your ratio. You could also ask your lender to lower your monthly payments so your debt-to-income ratio decreases.
Reason 2: Credit Score
Your credit score is your financial reputation. It соuld be what a lender uses to decide if you’re a risk to lend money to. If your credit score is bad, you may not be able to get approved for a mortgage.
Your credit score helps lenders predict how you’ll handle your debt. A high credit score shows you take on debt responsibly, and a low credit score shows lenders you’re likely to default.
To improve your credit score, try paying off your monthly bills on time and keep your debt low. It’s also important to have a mix of credit sources, like mortgages, car loans, and credit cards.
Reason 3: No Down Payment
To get a mortgage, you need to put a down payment down on your home. A down payment is the amount of money you pay upfront to help whittle down the loan amount.
Financial experts recommend having a 20 percent down payment before you get a mortgage. This helps ensure you don’t саnсеl your mortgage because of financial hardship.
You can recover from mortgage denial due to insufficient down payment is to save more money. Yоu can start saving by decreasing your lifestyle expenses. You could also ask family and friends for financial support. Having a larger down payment can go a long way in helping your mortgage application gets approved the second time around.
In Summary
Mortgage denial is disappointing, but it’s something you shouldn’t be ashamed of. It happens to many homebuyers. When you go through the process of mortgage denial, you learn a lot about your financial situation and why it wasn’t accepted. You can then make changes in your financial habits to increase your chances of approval. And when you go through the process again, you could make yourself a better candidate for mortgage approval.
Finance your dream home and get the best rates when you work with Skyway Financial. We are a full-service mortgage company that helps homebuyers and homeowners in California, Florida, Michigan, Texas, Tennessee, and Virginia. Chat with us today to get started.
