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
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
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