Intro to Mortgage Rejection

It is hard enough to go through the mortgage process and come up with all of the facts, figures and supporting documents. Then you must hold your breath and wait, probably pulling out your hair from anxiety. Finally, you hear a response from the mortgage company. Instead of “you’ve been approved!” They tell you that you are not qualified for a loan at this time. You want to scream and decide that you will never be able to own a home.

Is this you? Well, first of all relax. Even if you get rejected by one lender doesn’t mean that others won’t accept you, and there is also no rule that says you are just ineligible for a mortgage forever, no matter what. There are ways to change your credit and your income, along with other factors that affect your loan application’s approval. First you need to understand these factors and then you need to take action.

One possible cause of loan rejection is that the appraisal value is too low. Lenders consider the ratio of the desired loan amount to the sales price of the appraised property. If the appraised value is much lower than the loan amount, the loan-to-value ratio, or LTV, may be too high for the mortgage company’s comfort.

The lender wants to give loans to those who are undoubtedly able to return the money, and whose home value will compensate them in the event that there is a default on the loan (remember that the mortgage company can take back your home if you do not pay the loan in full). If the value of your appraised (potential) home is not worth as much as the loan you want, the lender has a hard time giving you a mortgage that they would have no equity or “insurance” behind.

You can also be rejected for inadequate funds. The lender may have determined that you do not have enough immediate savings or cash to pay for the down payment and closing costs. Remember that there are gift programs and that sometimes there are deals that can be made with the seller, where he or she will cover the origination fee and even lower or pay some of the other closing costs.

Insufficient income is a biggie. If you do not have proof of a regular income, the mortgage company cannot trust you to just “come up with” enough money to pay off your mortgage each month. Generally, lenders look to see that you would spend no more than 28 percent of your income on your mortgage payment. If your income is low enough that you would be spending more than 28 percent to cover the payments, the mortgage company will probably think twice about approving you.

Remember that if you are self-employed, you need proof of an ongoing, continuous and somewhat generous income. It is fine not to receive a regular, fixed paycheck. The lender just needs proof that you are receiving money, even if it is on a random or irregular schedule.