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Sometimes, it takes only one denial of an application for mortgage financing to shatter dreams of owning a new home. Should your loan request be declined, find out why it was and how you can avoid repeating the same mistake in the future. Loan qualification is not such a complicated business; so, as long as you know what’s going on you may be able to foresee the results of your application.
There are some very common reasons for loan denials as well as corrective measure to avoid them. Read on for some existing alternatives that suit low and moderate-income homebuyers.
Reasons For A Loan Decline
Sometimes it isn’t only the debt amount owed by the applicant that prevents qualification for the loan. Extensive credit card usage and revolving accounts indicating increasing account balances approaching the credit card limits can kill the prospects. You need to show moderation to lenders in order for them to confide in you.
Bad Credit History
Bad credit reports featuring frequent late charges, past due accounts, judgments and bankruptcy can reduce chances of loan approval. Guidelines on debt ratios and income requirements are one thing but tolerance of bad credit record, is a different story. Low loan-to-value ratios and debt ratios cannot compensate an unsatisfactory credit history.
No Credit History
Lack of an established credit history can cause problems in loan approval. Even without negative aspects, no record of timely loan repayment or charge accounts is as bad. In such a situation, there is hope of a non-traditional credit history. This involves the lender depending on utility companies, landlords both past and present, among other sources to verify your timely, consistent repayment. If this hasn’t occurred to your lender, suggest it.
Percentage of Financing
The ratio of the loan to the sale price or appraised value of the property whichever is lower, is one of the lender’s considerations. Appraisal of property being substantially lower than purchase price, the loan-to-value ratio (LTV) may be more than the lender can legally approve. For a maximum loan amount, 90 to 95 percent of the purchase price, a low appraisal could make the desired loan too high. Here your options depend on the reasons for the low valuation.
One Loan Decline Is Not The End
One lender’s rejection need not ban you home ownership for good. There’s a lot you can do to improve your chances. Some of these measures may be done quickly while some may take time. However, most problems can be corrected. Take your time and analyze the possibilities, the reasons why your loan request was turned down and do whatever is necessary to rectify that problem.
In order to get approved you can resort to many different means. The most important one is to improve your credit score by applying for small loans and paying all the installments on time. This will create a good credit history. However, If you don’t have the time, you can try offering some kind of collateral like a car or a real estate property or you could apply with the aid of a co-signer (with better credit history and score than you) as this will provide the lender with greater security.
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