Five Things to Do After Mortgage Denial Before Applying Again
Right now mortgage loan rates are at historic lows and it is a good time to take the opportunity to benefit from them. Not everyone that is applying right now is getting approved for a loan. Recently the requirements have stiffened a little for loan applicants in 2020. Here are some things borrowers who have faced denial can do to improve their chances at approval in the future.
Work on Your Credit Score
A credit score is a measurement of the history in your reliability of borrowing money. This is a major factor that all lenders check when you apply to borrow money from them. If you were denied a mortgage, your credit score may need work. Right now the best credit score to have is around 700 or as close to it as possible. Things that will help raise your score include getting the balance on credit cards down and making other loan payments on time.
Pay off Some Debt
Debt-to-Income ratio was the biggest factor in loan denial in 2019 according to the total number of loans denied that year. Lenders want to be confident you have plenty of money to make your mortgage payments. If you have a good amount of debt already this makes you look risky to a lender. If there are other loans you can pay off right now, it is a good idea to help you on your journey to buying a new home. Ideally lenders want to see less that 50% of your monthly income tied up in other payments.
If you have a short history at your current job, this could be hurting your chances of obtaining a loan. Especially right now as the unemployment rates have increased. You may be making plenty of money to pay the bills right now, but it might not be solid enough evidence that you will have a steady income to continue making mortgage payments. Lenders generally want to see a year or two at the same company or several years in the same line of work.
Pad Your Savings Account
The more liquid assets you have the more comfortable a lender will be loaning you their money. This shows them that if something does happen unexpectedly you have prepared and have a bit of a cushion.
Look For Errors in Your Credit Report
It is not uncommon for someone to have an error in their credit report. These errors look like big red flags to lenders. Items like late payments are often reported incorrectly or placed on the wrong borrower’s report. These are things that tell lenders you are risky to give money to, so it is worth looking over your report to make sure it is accurate. If it is not a request should be made to the company that reported it to fix the mistake.
A loan application denial does not mean your chances of obtaining a home loan are gone, it just means that some things should be done before a lender will take a chance on lending you money.
For more information on purchasing a home in Columbus and surrounding areas please contact us any time.