Getting a loan does not have to be a daunting experience if a borrower understands what are needed to qualify for mortgage. In this article, we are going to talk about some of the top reasons why mortgages are declined.
Posted by: admin
A top reason why mortgage borrowers get rejected is because they do not have sufficient income to qualify the loan amounts they are hoping to get. How much income is needed varies from borrower to borrower. Everyone’s situation is different. So how do you know if your income level is qualified? The easiest way to explain is your debt to income ratio cannot exceed the guideline set by lender. Lenders will look at your debt and measure it against your income. It is called debt to income ratio. If the ratio is over the guideline, the loan will not be approved.
Certain incomes do not qualify
Not all incomes qualify for mortgage. For example, certain gains from from investment activities cannot be used to qualify for mortgage. There are a few others, depending on each borrower’s unique situation.
Too much debt
How much debt is too much is again tied to the debt to income ratio calculation. It is important to note when lenders calculate debt, the debt will include not only your existing debt, but also the future mortgage debt as well. With that and if your debt to income ratio is beyond lender’s guideline, you may run into problem trying to qualify.
Most lenders will look for at least 2 years of steady employment. If a borrower lacks consistent employment record, qualification could become a problem.
Short of fund for down pay or reserve
One of the things lenders will look at during a loan approval process is to check borrower’s liquid asset, more specifically, bank statement that shows how much cash do borrowers have. Lenders want to verify, among many other things, do borrowers have enough for down pay and reserve. Most lenders require a couple of months of reserves. A reserve basically means that you need to have some cash in bank available for emergency situation, such as if borrowers lose jobs but still be able to meet mortgage payments for a couple of months until finding other jobs. The requirements for reserves differs from program to program. It also depends on each borrower’s unique circumstance. If there is not enough cash for down pay or reserve, approval may become a problem.
Property has problems
Sometimes it is not the borrower’s qualification that has issue. It may be something wrong with the subject property that results lender’s decision to decline the loan on that particular property. For example, during mortgage application, lenders will check the title on the subject property. If the title is seriously flawed, lenders would decline the loan. Another example is unpermitted alteration. Depending on the local city government’s law, homeowners may need to apply for permit before doing any kind of alteration to the property. Unpermitted alteration to the property by the seller may or may not trigger rejection on the loan, depending on the nature and degree of alteration done to the subject property.
There are many other reasons that could cause mortgage be declined. Some causes are rare while others are common. Everyone is different. Loan officers such as myself will be able to assist you and answer any questions you may have.