Everyone has the dream of home ownership. You’ve been looking at homes on the internet, stopped into a few open houses, and finally spoke to a Real Estate Agent. You are very excited about owning your own home.
But unless you are paying cash, you are going to need a home mortgage loan. Applying for a mortgage loan, no matter who you are can feel a bit overwhelming, paperwork intensive, and nerve wracking.
You finally apply, provide your paperwork, and some mean nasty horrible rotten Loan Officer tells you that you are denied!
What To DO If You Are Denied For A Mortgage Loan
The first step is to find out why. Ask your Loan officer to be very specific in explaining the why of your denial and ways to fix it for the future.
The most common reason for denial is poor credit. There are no poor credit loans in today’s mortgage world. For most people, you will need a minimum credit score of 640. You may read of lower score possibilities, but realistically, don’t bother applying with a score under 640.
When a Loan Officer tells you that the denial was credit related, don’t just take a quick answer of “it was your credit”. Ask them specifically what on your credit report is the issue. Any good Loan Officer can discuss with you the credit challenges, and give direction on ways to improve credit. I personally have coached many people that were denied today, but in just a few month, they are back and approved.
If possible, have them provide a copy of the actual credit report that you can reference. Good free alternatives are places like CreditKarma.com, and AnnualCreditReport.com.
Lack of down payment money is right up there near the top of being a problem for many first time home buyers. For some, there may be other options, like a no down payment VA loan available for active a former U.S. Military personal, or the no down payment USDA Rural Development loan available for more rural homes. There may be options for down payment assistance programs too. But for everyone, you need to have some money to be in the game. Regardless of the program, if you have no money, you are not buying a house – even with no down payment loans or down payments assistance. At a minimum, everyone should have $3,000 IN THE BANK that they can put into the transaction. Earnest money, inspections, and appraisals are often forgotten about, but need to be paid up-front regardless of loan type. A good Loan Officer can help you search for options.
The next biggest area I see is DEBT to INCOME RATIOS. Basically this comes in two areas. Simply trying to buy a home too expensive for your income, or having way too much debt. The basic rule of thumb is that most people can afford about three times their yearly income in a home, as long as they don’t have too much other debt, like credit cards, car loans, and student loans. If you have a lot of debt, you’ll probably have to pay it down or look for a less expensive home.
Finding The Right Lender
I always say that 10% of the success of buying a home is the company you choose, and 90% is the Loan Officer you choose. Most people choose very poorly, by simply talking to whoever picks up the phone at the bank, or by applying with a company who advertises all over about how quick in loan they are (get it? 🙂 Many Loan Officers have limited knowledge, don’t fully understand guidelines, and are more of an application clerk type, versus a professional Loan Officer, and may not even be aware of some programs. Next, not every lender offers all loan products. A great example on this one is I see a lot of people who said a credit union told them they need 20% down because they don’t offer FHA Loans. Yet I can easily offer the same person a 3.50% down FHA Loan.
On a very regular basis, I am able to provide financing to someone who was denied by another lender. This is why it is important to understand exactly why you were denied, and get a second opinion – especially if you were talking to a bank or credit union loan officer. On the other hand, I am no magician either. If you have very poor credit, you can call every lender in the nation, and you still won’t get a loan.
Finally, don’t give up hope. For a lot of potential home buyers, just a little bit of time, and a little bit of effort can easily put you. Paying down some debt, and fixing a few things on a credit report generally don’t happen overnight. But if you want to buy a home, follow your Loan officers advice, and together we’ll make it happen in short order.