Why Banks Reject Mortgage Approval Applications and How Can You Reverse the System?

Why Banks Reject Mortgage Approval Applications and How Can You Reverse the System?


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A home is more than a mortgage. It is a dream. For most people home ownership is a big goal, as it defines a turning point in one’s life.

In America, the easiest way to get a home is to obtain a property mortgage. The Govt. has been encouraging individuals to purchase homes. The 30-year mortgage was introduced after the 2008 housing crisis. Eight years after the recession, the year 2016 was considered the best year for the US housing market. While traditional markets did not see growth as expected, we witnessed tremendous growth in developing markets around the US.

Now in 2017, we have more buyers than inventory in the country. That means more people have access to affordable loans than ever before. Still, in these times, we have noticed many people cannot buy homes because the bank did not approve their applications. This mostly happens because of two reasons i.e. the borrower missed some important information on the application or any of the following:

Too Much Outstanding Debt

Outstanding debt can create problems whether it is a car loan or a business loan. Business loans may be considered separate from your personal portfolio, but lenders will assess the potential risk from other types of loans. Qualifying for a mortgage with other pending loans will be difficult.

To get approved, you must submit a down payment close to 20%. Build a savings account and show you have the ability to pay for your future home.

Poor Credit Rating

Your access to credit, your utilization rate, the number of loans/credit cards, payment history, interest rates, and the length of credit history make up your credit score. Pending debt also contributes to your credit history. Get a credit report from any of the three major credit bureaus and see whether your score will let you qualify for the mortgage.

Recent Changes in Lifestyle (Marriage & Job Change)

Believe it or not, major life turns can be a reason banks will reject your application. Lenders like to see stability, and if you just got married, had a child or changed your job, then your financial future will likely change as a result. Wait for a few months before taking a significant step and then submit your mortgage application.

Debt-to-Income Ratio

You may be earning $200k, but you cannot afford the mortgage if you are spending $180k. Banks would like to see proof that you can pay the loan while living within your comfort zone. Your debt-to-income ratio gives a clearer idea of your financial status.

Ideally, mortgage and other debts should not make 43% of your income. The mortgage alone should be restricted to 33% of monthly income.

Buying in a declining market

Mortgage lending is a secure loan because the bank will use your home as the collateral. The lenders will lose money if the home value declines or the market experiences a downtime. One of the common reasons for application denial is low appraisal values.

The bank must turn down your request if the property does not appraise for the expected price. When this happens, get yourself out of the deal or negotiate a lower price. You should not pay above the Fair Market Value.

Insufficient Bank Balance

You need money to pay the mortgage and the down payment. The bank will not approve your loan unless you can provide enough cash to cover 10% of the home price. This 10% will cover the cost of inspection, taxes, appraisals, down payment and the mortgage installments worth 3-6 months.

Your application will also be rejected if you are borrowing the down  payment. Save up for your future home and collect at least a 20% down payment to avoid paying higher interest rates.

About the Company:

Amity Property Solutions LLC is a premier residential redevelopment company. Our company buys, renovates and sells residential properties throughout the West Palm Beach area. The firm also helps people going through foreclosure by purchasing their homes in the pre-foreclosure stage and thus freeing them from the mortgage debt.

[Photo Credits: TaxCredits.net & www.gotcredit.com]

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