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Turned Down for a Mortgage
So: you’ve been turned down for a mortgage. Ouch.
The rejection hurts, but remember: a mortgage is a big deal. You’re asking to borrow hundreds of thousands of dollars, and lenders have any number of reasons to consider you too much of a risk.
Before you start the process all over again, make sure you understand the reasons you were denied in the first place.
Let’s take a look at some of the most common reasons underwriters deny loans.
The appraisal was too low
A home appraisal is a key part of the process, whether you’re buying a home or refinancing. An appraiser will research the home to tell the underwriter how much it’s truly worth.
Underwriters want to know that you’re not spending (and thus borrowing) more than the property is worth. After all, if you ever need to sell, you want to make sure you can get enough money for the property to pay off the mortgage.
If the appraisal is far lower than the accepted offer on the home, the lender may not be willing to join the deal.
The home is in rough shape
Lenders won’t always need to see an inspection report, but they might ask if the appraiser observes any possible health or safety issues. When a house is in need of critical repairs — maybe the roof is looking dicey, or the furnace doesn’t work — the lender could demand that repairs be conducted before it lends you a dime.
You can’t prove steady income
An important part of your loan application is your job and income status. A lender wants to ensure you’ll be able to keep up with your monthly payments.
Being out of work will make getting a mortgage pretty difficult. Lenders will even get nervous if they see that you’ve changed jobs lately.
You have bad credit
If your credit score is low, it is likely that your mortgage loan request will be denied.
Still paying off your student loans? Carrying a sizeable balance on your credit cards?
High debt without a high salary to match is a red flag because it tells lenders you might not be able to handle your mortgage payments. They’ll be out of pocket if you default down the road.
You can’t prove you’ve got the cash
Lenders need to know you have money in the bank to pay for the down payment and closing costs.
You’ll need to provide bank statements or a proof-of-funds letter to show you’re good for it. And if you’re getting financial help from family, you may also need a gift letter to prove the money isn’t just another loan you have to pay back. Most lenders have their own gift letter that will be required to sign. Please speak with your Mortgage Agent to obtain the lender specific form.
If you can’t provide the necessary documents, and the lender can’t verify you have the assets, there’s a good chance your application will end then and there.
What to do if you’re denied a mortgage loan
Start off by finding out why. Most lenders will be happy to explain why you were denied, and in some cases, they may be required to disclose their reasons. Once you know the reasons, you can address them in the right way. These ways include the following:
· Improve your credit score
· Add income
· Increase your down payment
· Get a co-signer
If you have been denied a mortgage loan and want to look at your options before plunging in again, please feel free to reach out to me. I’d love to help you navigate through your next steps.
Many thanks to Ethan Rotberg’s National Post article on this topic here: https://financialpost.com/moneywise/you-got-turned-down-for-a-mortgage-heres-what-to-do-3
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