Most of us need a mortgage when we purchase a home. However, it’s important to realize that the mortgage application process involves a rigorous review of your financial situation. If a lender doesn’t like what it sees, it will deny your application. So what can you do if this happens?
- Find out why your application was rejected. As Bankrate advises, the loan officer who handled your case should inform you why your mortgage application was denied. Reasons can include a poor credit score, a high debt-to-income ratio and a loan sum that’s too high relative to your income.
- Adjust your application to make it more realistic. If the sum you wanted to borrow was too high, it can be an easy fix to simply adjust that number downwards. For example, if you wanted to borrow $350,000, asking for $250,000 instead might enable you to get a mortgage. However, you’ll have to look for houses in a lower price range than you originally wanted.
- Shop around with other mortgage lenders. Different mortgage lenders have different policies, so it’s possible that you might be approved with another lending institution. Note that banks frequently have more stringent regulations than dedicated mortgage lenders.
If none of these options yield any results, it’s advisable to use your denied mortgage application toward improving the likelihood of getting a home loan. It’s also a good opportunity to make some strong life decisions about adopting healthier financial habits in general. The following pointers can help:
- Review your credit report. Make sure there aren’t any errors on it that could impact your credit score. Also, Nerdwallet reports that if your credit score’s 640 or below, most mortgage lenders won’t approve you — so you’ll have to take some time to build it up to at least 700. If you can achieve a score of 760 or over, you’ll stand an excellent chance of getting a mortgage.
- Pay down your debt. If you have credit card debt, an auto loan, a student loan or a personal loan, lenders might consider you too much of a risk. Pay down as much of your debt as possible — especially on high-interest loans like credit card debt.
- Build up your savings. The more cash down you have when you purchase a home, the better, as it shows the lender that you’re invested in the property. As a result, you stand a better chance of getting approved — as well as qualifying for a lower interest rate.
- Increase your income. This might be challenging, but it’s definitely worth trying if you want to be approved for a mortgage. Consider finding another job that pays more or getting a second job to supplement your main income.
Once you’ve taken measures to improve your financial situation and build up your credit score, you can apply for a mortgage again. However, this time, it’s advisable to get pre-approval, since this process can reveal if there are any other issues you need to address first. To speak with a Los Angeles mortgage broker about the mortgage application process, contact Peak Finance today!