3 Big Reasons Mortgage Applications Are Denied

3 Big Reasons Mortgage Applications Are
Denied
The 2008 fiscal crisis made it even harder to get approved for a mortgage than before. It’s taken a
decade, but some lenders have finally begun to relax their standards. Even with lenders being slightly
laxer, however, there are millions of people who still get denied for mortgages.
There are trends in why these mortgages are getting denied, however. Knowing what those are can help
to increase your own chances of getting approved when it finally comes time to try purchasing a home.
Below we look at three of the most common reasons people get denied.
1: Debt to Income Ratio
Often referred to as simply “DTI,” Debt to income ratio refers to how much your expenses are versus
how much you make. It is responsible for 26% of all current mortgage application rejections. Any
payments which occur every month are included in this calculation, and when applying for a mortgage,
the lender will add the estimated payment into the calculation to see if you’d be able to afford it.
Here’s how it works:
Let’s say you are a dual income family applying jointly for a mortgage. Together you bring in $5,000
gross profit each month. Your recurring expenses include a student loan, a car payment, and (of course)
your new mortgage. This amounts to $3,000 a month. This would mean you have a debt to income ratio
of 60%.
Most lenders want a debt to income ratio of 45% or less and will reject those with one too high. There
are several ways to reduce this number to help grant you the mortgage. The most obvious is to try for a
smaller loan. This can be done by (A) choosing a cheaper home, or (B) saving a larger down payment.
If you are planning to purchase a home in the next one to five years, you can start lowering your DTI
now by paying off any existing loans, such as student loans, car payments, credit car debt, medical bills,
etc. By paying them off in full, you can drastically lower your monthly recurring expenses.
2: Less Than Perfect Credit History
Your credit history and score will be reviewed as part of your mortgage application and is responsible for
an incredible 26% of all rejections. The credit scored used by most lenders isn’t the exact one you get on
those free report sites, however. The score received on most of free credit reporting sites is a Vantage
Score, whereas the one used by lenders is typically an older version of the FICO score. The two are
similar, but not exact.
It isn’t just your score which will be reviewed, but also your credit history. Each lender will want a
minimum number of credit lines and years of credit on file.
3: Home Value

If the home you hope to purchase isn’t worth the amount of the loan, the bank will not approve your
mortgage. Responsible for 17% of rejections, your new home (as scary as it sounds) is collateral in the
event you don’t repay your loan.
To find out how much your new home is worth, the bank will hire an independent appraiser. They will
look at both the property and current sales trends of comparable homes in that general locale. For more
mortgage info please visit http://www.ratewinner.com.