Posted on 11/25/2016 at 09:30 AM by State Savings Bank
So you’ve been through the whole ordeal - you shopped all over town, you found a great home within your price range, maybe you even started planning the décor. But then, when you go to get your mortgage...you’re declined.
It’s disappointing, for sure. But a denial can actually be a helpful learning experience - it’s a way to force you to assess your finances and take steps to remedy the situation.
Here are the top reasons we've found that mortgage applications are denied. Read through to discover how you can fix each one!
- Poor Credit History. A mortgage is an investment the bank is making in you. So it makes sense that if your credit score is low, or there are red flags (like foreclosure or bankruptcy) in your history, they will hesitate to approve your application. Most lenders consider a FICO score of 620 or higher. If your credit score needs building up, the only real fix is time. There are some great tips here http://www.bankrate.com/finance/debt/7-simple-ways-improve-credit-score-1.aspx for managing and boosting your credit, but there are no instant fixes. It takes dedication, self-control, and attention to detail.
- Debt-to-Income Ratio. Debt-to-income ratio is the percentage of your (pre-tax) income that is - or will be - dedicated to monthly debt payments: student loans, car loans, credit card debt, etc. Lenders offer some flexibility, but they typically prefer to see that less than 38% of your monthly income is going towards these payments. There’s a possibility of exceptions if you have exceptional credit history or a documented ability to save money. Getting an idea of your ratio prior to applying (or applying again) is an essential step. Your financial advisor can look at your ratio and suggest ways to reduce any excess debt.
- Employment Issues. As we mentioned earlier, the bank sees you as an investment, and they want to make sure that investment is protected. If they don’t have proof that you can hold down a job, they don’t have a way of making sure that you’ll be able to pay your mortgage payments consistently. Some loans even have an employment requirement (for example, an FHA mortgage requires 2 years of consistent employment). Luckily, pay stubs and tax records are an easy way to prove your employment! If you don’t have the benefit of steady employment right now, don’t worry. It can take a while to find something that suits you. But if your mortgage application is declined due to employment, that might be a sign that you have a little more settling down to do before you’re ready to commit to a house.
Here's How We Can Help
These are not the only reasons that mortgages are denied - but the fact that they’re the most common indicates that people could use help identifying where they stand financially. That’s where we come in! But before you approach a lender, ensure that all of your financial information is well documented, well organized, and most importantly: 100% accurate. Banks have to verify every bit of information you provide, and if inaccurate estimates are used at any point, you could be denied.
Next, we recommend building a relationship with a mortgage lender. You want this to happen as early as possible - and make sure you find one who is seriously invested in helping you succeed. We can’t recommend our staff more for this - one of the huge benefits of a smaller bank like ours is that we are committed to finding personalized solutions for each individual who banks with us. Find our lenders here: https://www.ssb.bank/home-mortgage/.
Also - always make sure you take the time to get prequalified for your loan. Knowing your budget means you won’t be blindsided when you go to apply for a mortgage. If you need help at any stage of your application, we’re only a phone call away. We’ve got the knowledge, know-how, and experience to make your home-buying experience as stress-free as possible.
Give us a call at (641) 227-3161 in Baxter or (515) 457-9533 in West Des Moines to set up an appointment.