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Why was your Mortgage Application Denied (and what to do about it)?

Why was your Mortgage Application Denied (and what to do about it)?

Like most, you are not in position to purchase a home with cash. Instead, you need a mortgage to make your dream come true.

The problem with this is simple: you may not qualify for the amount of cash you need to make the purchase. If you find yourself in this position, it is important to become familiar with the application process as well as what you can do to improve your chance of approval.

Here are three of the most common reasons for a mortgage application denial:

1. Lack of income. The amount of money you earn will determine how big of a loan you qualify for. This may change slightly from lender to lender, so don’t be afraid to shop around. If you don’t show enough income, you may not qualify for a mortgage amount that allows you to make a purchase.

2. Too small of a down payment. Do you remember the days when you could qualify for a mortgage with little or no down payment? Those days have come and gone. Now, you need a sizeable down payment for a lender to take you seriously. If you don’t yet have enough cash for a down payment, you may want to hold off until you do. This will improve your chance of approval.

3. Too much debt. Most people have some debt when they go into the home buying process. For example, student loans, credit card debt, and an auto loan. However, if you have too much debt, your mortgage application may be denied. The lender will calculate your debt-to-income ratio to determine if you are a good risk. If this number is greater than 36 percent, an approval could be difficult.

These are just some of the more common reasons for a mortgage application denial. Here is the good thing: each of these situations have a remedy. For example, if you don’t have a down payment saved, you can begin to stock money away for a future purchase. This may not be something you want to do, but at least there is a solution.

Final tip: not all lenders approve and deny loans in the same manner. With so many options to consider, don’t be shy about shopping around.

A mortgage application denial is not the end of the world. All this means is that you have to adjust your approach. Are you willing to do so?

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Tuesday, 14 July 2020

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