Why Are Your Mortgage Applications Declined?

When it comes to mortgage applications most people worry about low credit score. Surprisingly, this is not the only most common reason for mortgage applications to be declined. Here are common reasons why mortgage applications are declined:

Undocumented income

When applying for a mortgage, lenders tend to ask for paycheck stubs, tax returns and bank statements. This helps the lender to see if your income is what you say it is and if it is consistent over the years. If you do not have documents that can prove your income then it gets really difficult for lenders to approve your loan since they are not sure of your financial status. Documented income allows the lender to have confidence in giving you the loan since they are sure you have a consistent income.

Too much debt


Lenders consider your other debts and they do not want your debts to consume so much of your monthly income. That is why there is a debt-to-income ratio of forty three percent for anyone who is interested in qualifying for a mortgage. Forty three percent debt-to-income ratio means that all your monthly debts, which should include the monthly mortgage payment that is being estimated, should not be more than forty three percent of your monthly gross income. If that percentage increases, then the loan will be rejected. This is because when you have too much debt, then probably is, it might later on become an issue to pay for your mortgage.

Shaky employment background

If you have an inconsistent employment background there is a high probability that lenders will decline your mortgage application. You need to have had a job for at least two years before you apply for a mortgage loan. Lenders prefer dealing with someone who has a consistent monthly income and not someone who moves from one employer to the next. This consistency assures them that your monthly mortgage responsibilities will always be met and by what amount.

A small down payment

You may meet all the required requirements for your mortgage loan to be approved, but the minute you give a small down payment, then you risk the chances of your mortgage being accepted. If you also happen to have a weak credit score or a high debt-to-income ratio then paying a large down payment can increase your chances of qualifying for a loan. A small down payment cannot work either way, ensure your down payment is attractive enough.

Bad credit

Lenders really focus on an applicant’s credit score before they approve a mortgage loan. Lenders always consider a FICO credit score of seven hundred and forty or more for one to be qualified for a mortgage loan. The lower your credit scores the higher the chances that your mortgage application will be declined. The credit score is one hindrance that affects most loan applicants. Ensure your credit scores are according to what the mortgage lenders demand to avoid the risk of your application being rejected.

If you are planning to apply for a mortgage, ensure that you have all the required paperwork and you meet all the required qualifications. Also ensure that you avoid the red flags outlined above and you will not experience your mortgage loan application being declined.

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