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What Should I Do If My Application for a Mortgage Is Denied?

January 16, 2023blog0

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Rejection of a Mortgage Application can be devastating. You’ve done all the hard work and discovered a home you’d want to reside in. Now you’ve been informed that it’s impossible. What then?

Determine what went wrong

Understanding why your application was denied is the first step in getting your home buying process back on track. First, read your refusal letter. Most include the precise rationale for the lender’s decision. If not, contact the loan officer with whom you submitted the application; they are required by law to explain why your mortgage application was declined.

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According to our experts, the majority of mortgage denials are due to one or more of the following issues:

  • Bad credit
  • Inadequate income
  • An excessive debt-to-income ratio

Let’s examine each issue to assist you understand what you can do to get the home-buying process back on track and prevent future mortgage denials.

Mortgage Rejection Problem 1: Poor credit

Prior to applying for a mortgage or other large loan, it is essential to have a thorough understanding of one’s credit report and credit score. Not only will it help you prevent the sadness and surprise of being rejected a mortgage, but it will also assist you in detecting identity theft and correcting any incorrect information that may be harming your credit.

What should I do if my mortgage application was declined due to bad credit?

Obtain copies of your credit reports and examine them for errors or signs of identity theft. The procedure of rectifying these mistakes is not always straightforward, but it is essential to delete inaccurate information that could be harming your credit score. Avoid difficult enquiries prior to your next mortgage application. Hard inquiries are elements on your credit report that indicate another lender examined your report while considering extending your credit or lending you money, such as credit card and auto loan applications. Soft inquiries include credit checks from insurance companies, employers, and pre-approved credit offers, as well as your personal credit report review. Soft credit inquiries have no effect on your credit score.

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Mortgage Application Rejection Reason #2: Insufficient income

It would be fantastic if we could enhance our incomes by waving a magic wand. Unfortunately, this is not the case. Ensure that your next mortgage application includes all valid kinds of income. Don’t forget to include income from Social Security, disability benefits, alimony payments, and any income from part-time work or side hustles. Not all mortgages and eligibility requirements are identical. Work with a reputable, knowledgeable lender(Opens in a new window) to locate a mortgage that fits your needs and circumstances.

Mortgage Rejection Reason 3: A high debt-to-income ratio

Sometimes, even if you have a decent income, your lender will deny your mortgage application due to excessive debt. If you are already committed to other lenders and repayment of those obligations consumes too much of your income, you will not qualify for a mortgage.

How do I reduce my ratio of debt to income?

Before submitting your next application, it is beneficial to either increase your income or reduce your debts to ensure that your DTI ratio is favorable to lenders. However, if your DTI ratio is a bit high, you can rest confident that many modern lenders will also evaluate your credit score and savings, perhaps offsetting your ratio.

Successfully complete your next mortgage application

If your mortgage application was declined, it is not a good idea to immediately apply elsewhere. This causes several hard queries on your credit record, and it is preferable to explore and resolve any credit, income, or debt difficulties before approaching another lender. However, if you’ve done your research and believe you just had terrible luck, you can submit another application — just don’t go overboard. When you are ready to try again, search for a lender with whom you can establish a relationship and who has access to a variety of mortgage options to help you find the best fit.

Take the first step towards finding your new home.

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Our loan offices at Dream Home Mortgage want to help you purchase the home of your dreams. Contact us immediately to see how we may assist you in achieving your homeownership objectives.

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