Applying and getting approved for a mortgage brings you one step closer to getting your dream home. If you have a large down payment ready or have excellent credit and income, you should be approved without a hitch. But unfortunately, it doesn’t always go smoothly. It’s part of the reason why mortgage denial can be such an unfortunate setback to experience.
The good news is that mortgage denial doesn’t have to end your chances of buying a home. If you are prepared and know exactly why you were denied and understand what to do next, you can still find a great home.
Common Reasons Behind a Mortgage Denial
Here are some of the most common reasons why your mortgage application was denied in the past:
- Unstable Income. Stable income is extremely important for a mortgage application, yet many applicants tend to rely on their credit score for approval instead of their actual income. If you have an unstable income, it will make it difficult to get approved for a mortgage. After all, lenders need proof that you have a reliable source of income. Even with existing income that fluctuates during the year, a lender will have to decide if it is worth the risk of loaning you money. Try to increase what you earn and get a steady source of income.
- Overwhelming Debt. Having debt on your credit report is not a good thing. It makes it appear as if you are not responsible for your finances and are not able to pay back your debts. Many lenders will automatically reject applications due to potential financial irresponsibility. To avoid running into this problem, try to keep your credit card balances low and pay off your debt as soon as possible. Having a cleaner record ensures that your debt is low or ideally non-existent, indicating good financial capabilities.
- Low Credit Score. A low credit score is another reason for mortgage denial. If your credit score is below 620, you may have a hard time getting qualified for a mortgage. Even if you don’t currently have any debt, a lower-than-average score can still hurt your chances of approval. Be sure to check your credit report to make sure all your information is correct and actually belongs to you. This will help you avoid identity theft, increase your credit score, and gain approval for your mortgage.
- Incomplete Application. When applying for a mortgage, fill out many forms. The more information you leave out, the greater chances of denial. Ensure you complete all available forms, provide the correct data, and submit the right documents. As a reminder of earlier points, your loan may be denied if you fail to answer a question about your income or credit.
- Inadequate Down Payment. If you have less than 20% of your home purchase price saved up as a down payment, you may be denied. Lenders are careful about loans that require mortgage insurance, especially because it will cost them more money. If you have enough saved up to make a significant down payment, you have a much better chance of being approved.
Mortgage denial is unfortunate and unacceptable, but you can make a change if you know the reason behind your denial. Remember to improve your application to get the approval for your coveted property.
Contact Mortgage Specialist Today!
Looking for mortgage loans in Arizona? Mortgages by Misty offers flexible mortgage products in Tempe, AZ, allowing you to have a home while accessing the entire Phoenix metropolitan area. Get in touch with us today at (480) 618-5358 to learn more.